Whitepapers

With the election of Boris Johnson as leader of the Conservative Party, and subsequently as the next UK prime minister, the chances of a ‘no-deal’ Brexit took a decisive tick upwards. We believe the UK ABS market will be an effective defensive holding against the deep uncertainty around the Brexit outcome, and one which could also offer some material spread upside given the premium currently being priced into UK assets.

Fixed income investors globally face a daunting environment in 2019, with a deteriorating credit cycle, heightened political volatility and increased uncertainty around global monetary tightening.

Despite boasting some of the lowest default rates across the global fixed income market, as well as higher yields and greater investor protections than vanilla corporate bonds of the same rating, Asset-Backed Securities (ABS) remains an under-utilised market for many pension funds. TwentyFour partner Ben Hayward outlines five things every investor should keep in mind when looking at this compelling asset class.

For fixed income investors, it has been impossible to ignore the proliferation of press coverage about the growth of the triple-B rated corporate bond market, and a coming wave of downgrades for companies rated BBB to high yield, with these ‘fallen angels’ exposing investors to mark-to-market losses at best, and defaults at worst.

A disastrous Salzburg summit has brought the risk of a ‘no deal’ Brexit into sharper relief for fixed income investors.

This brief paper outlines our approach to absolute return, and why we think a predominantly long-only fund can offer investors the predictability and transparency that they demand through the investment cycle.

In this paper, we will try to demystify European ABS. First we explain how ABS work, their investment characteristics and how European ABS differ from both US ABS and senior loans. We then go on to discuss how European ABS can fit into a fixed income portfolio and why it’s an attractive investment.

This paper is intended to give an overview of the sector, highlighting the challenges faced by investors but also the rewards for those prepared to gain a thorough understanding of this complex area.