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For decades, the Bloomberg U.S. Aggregate Bond Index has been the foundation of fixed income investing. It remains an important benchmark, but it is not the bond market.
That distinction matters because many advisor portfolios remain concentrated in Treasuries, agency mortgages, and investment-grade corporate bonds, even though the investable fixed income universe is far broader. As a result, investors may be overlooking one of the largest and most diverse opportunities in fixed income: securitized credit.
Securitized assets include sectors such as asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), and non-agency residential mortgage-backed securities (RMBS). Together, they provide exposure to a wide range of underlying cash flows tied to consumers, housing, businesses, and commercial real estate.
Many advisors first look to securitized assets for income, and for good reason. These sectors have often offered attractive spreads relative to similarly rated traditional fixed income securities. In many cases, those spreads reflect market complexity and specialized research requirements rather than simply higher credit risk.
The Opportunity Extends Beyond Income
Securitized assets can introduce different return drivers than those found in traditional government and corporate bond sectors. Housing activity, consumer spending, borrower behavior, and commercial real estate fundamentals all play a role. That can help diversify fixed income portfolios that are otherwise heavily reliant on interest-rate and corporate-credit exposure.
The real opportunity, however, lies in the complexity of these markets.
Two securities may have similar ratings and yields, but very different risk profiles. Collateral quality, deal structure, prepayment behavior, and cash-flow protections can all materially impact outcomes. Understanding those differences requires more than a broad sector allocation.
That is why active management can be particularly valuable in securitized credit.
The goal is not simply to own the sector with the highest yield. It is to determine where investors are being adequately compensated for credit, liquidity, extension, and structural risk. Doing so requires detailed analysis of underlying collateral, cash-flow structures, and how securities may perform in different market environments.
Navigating these markets requires evaluating securities at the collateral level, assessing relative value across sectors, and identifying opportunities that may not be apparent through traditional benchmark-based investing.
