Securitized debt portfolios may invest in agency and non-agency securities including asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities (RMBS). Depending upon the specific allocation, portfolios may be managed against indices such as the FTSE MBS Index, and the Bloomberg Barclays U.S. Securitized and MBS indices.
The securitized debt market dates back to the 1970s when the US government pooled home mortgages to be repackaged as interest-bearing investment vehicles. The securitized market was eventually expanded to other types of asset-back securities including corporate and sovereign loans, consumer credit, project finance, lease/trade receivables, and individualized lending agreements. Mortgages have remained a substantial portion of the securitized market, despite challenges faced amid the global financial crisis, and has grown from roughly $4 trillion to $11 trillion over the past twenty years. Positive developments resulting from the crisis, such as regulatory changes governing how residential mortgages loans are underwritten, packaged, and securitized have improved the landscape of the housing finance system, and have led to securitized debt regaining its footing among institutional investors.
Securitized debt strategy offers institutional investors a flexible and customizable solution with the following benefits:
- Yields with potentially less volatility than other spread assets
- Sector diversification and asset allocation that can uncover excess return opportunities
- Significant due diligence on the specific assets classes, reducing the managerial idiosyncratic risk of other asset classes, such as equities
- Natural deleveraging as deals season, resulting in higher credit enhancement throughout the capital structure, creating opportunities to buy new issue bonds that may provide significant credit rating upgrades
- A wide range in credit quality, from AAA through non-investment grade, as well as duration
Stone Harbor’s securitized debt capabilities date back to 1993 when securitized debt asset were managed as part of broader mandates. We launched a dedicated standalone track record in 2007. We currently offer a flexible range of options within our Securitized strategy. Portfolios can be dedicated securitized debt separate accounts or pooled vehicles, or may be components of a broader investment grade or multi-sector credit portfolio