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Securitised credit: an alternative source of income
Our securitised credit team highlights the opportunities for investors looking to diversify away from traditional assets.
Key takeaways
- The large, USD4 trillion dollar-plus securitised credit landscape offers a variety of solutions for investors seeking alternatives to traditional carry with structural protection.
- These solutions can range from liquid cash solutions to investment grade securitised credit to illiquid alternatives.
- In a market environment with spreads on the tighter end, periods of volatility and rising single name stress, strategies that are diversified, active and offer attractive income are resonating with investors.
Low correlation to other risk assets
We are seeing increasing interest from investors looking for alternative asset classes that offer lower correlation to more traditional fixed income and equities exposure. Securitised credit provides exposure to alternative sources of risk, such as consumer risk, alongside having low interest rate duration which makes it a good complement to traditional assets. In our view, investors are seeking predictable and alternative sources of carry with structural protection from defaults.
Accessing alternative sources of risk
In the liquid high grade space – investing only in the most senior parts of the capital structure, primarily focusing on AAA-rated bonds with a range of collateral types – strategies can play a key role as cash enhancement vehicles offering an attractive spread pick-up, very high credit quality, and low drawdowns.
Securitised credit can offer a compelling solution from a liquidity perspective, given the attractive spread pick-up even in the very liquid, high quality part of the capital structure.
Secondly, investment grade securitised can provide an attractive complement to traditional investment grade corporates, with diversified strategies offering shorter spread duration, floating rate exposure, an attractive spread pick-up, and protection from single name stress alongside high credit quality.
Accessing the illiquidity premium
At the illiquid end of the spectrum, strategies investing in capital call loans are gaining traction as a diversifier to corporate risk factors. Here exposure to tier 1 sponsors can provide very high quality risk with an attractive spread pick-up versus IG assets driven by the illiquidity premium. As a large market that has traditionally been accessible only by banks, the increase in strategies offering this is very compelling for institutional investors as an alternative source of income in very high quality assets that are not linked to broader credit and equity markets.
Some investors are willing to have lower liquidity allocations and, in some cases, lock up capital, but the demand for an appropriate spread pick-up has increased. In areas like direct lending for example, we have seen a trend of spread compression versus the public broadly syndicated loan market, which suggests the illiquidity premium is not as compelling.
There is demand for high quality assets that offer a spread pick-up and some investors are willing to move into illiquid assets to access the premium. This is where capital call loan strategies can provide compelling solutions.
Beneficial in all market environments
In our experience, investors are looking for asset classes that can complement their existing asset allocations, offer lower correlations, and provide an alternative source of income.
Uncertainty is likely to remain high this year, however our outlook for securitised credit for 2026 is positive. Ultimately the asset class will be driven by broader macro moves, but its compelling characteristics such as short spread duration, strong collateral and structures, protection from single name credit events and natural de-leveraging offer compelling benefits versus traditional credit.
Securitised credit at RBC BlueBay
Securitised credit is an important asset class for RBC BlueBay. Our investment team is embedded within the wider global fixed income platform and benefits from the expertise of various teams including leveraged finance, investment grade, macro specialists and emerging markets.
We have longstanding experience across the securitised credit market, and the breadth of our platform is additive to our ability to actively manage portfolios. In a supply-driven market, where the ability to source investments is a key alpha driver, longstanding dealing relationships are key.
We work in partnership with the CLO management team, as RBC BlueBay is also a CLO manager with multiple deals in Europe and the US. This strengthens our platform, as we have excellent connectivity with trends in the CLO market and coverage of underlying loans, which benefits our bottom-up credit due diligence.
Read more about our Securitised Credit capabilities and investing in alternatives at RBC BlueBay: