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Why investors are bullish on securitized products yielding over 6%

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  • Securitized products, including MBS, CLOs, CMBS, and ABS, are yielding over 6%, making them attractive for yield-seeking investors.
  • Experts like Nick Travaglino and John Kerschner highlight the untapped potential and favorable valuations in this sector.
  • The inverted yield curve allows investors to secure higher yields by investing at the shorter end of the yield curve, where most securitized products are issued.

Investors are constantly on the lookout for opportunities that offer attractive yields. One such opportunity that has recently garnered significant attention is the securitized products sector. This sector includes a variety of financial instruments derived from pools of assets, such as mortgage-backed securities (MBS), collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS). These products are now yielding over 6%, making them an appealing option for yield-seeking investors.

Nick Travaglino, the lead portfolio manager for Nuveen's multi-sector fixed income strategy and head of its securitized products team, emphasizes the untapped potential within this sector. "Investors often overlook the true opportunities within securitized products," he states. With $75 billion in securitized assets under management, Nuveen is a prominent player in this space. Travaglino points out that while investors tend to focus on agency mortgage-backed securities, which are high-quality and form part of the core fixed-income market, they are missing out on potential gains from CMBS, ABS, and mortgage credit.

The complexity of these assets is often cited as a reason for their underutilization. However, Travaglino notes that securitized credit accounted for 51% of Nuveen's Strategic Income Fund's first-quarter returns, contributing 64% of the fund's total return. This highlights the significant impact that securitized products can have on a portfolio's performance.

John Kerschner, head of U.S. securitized products and portfolio manager at Janus Henderson Investors, also underscores the attractiveness of securitized products. He points out that securitized product spreads are currently wide compared to historical levels and corporate credit, which is near all-time tights. This presents a unique opportunity for investors to secure higher yields.

Additionally, the current inverted yield curve means that investors can achieve higher yields by investing at the shorter end of the yield curve, where most securitized products are issued. This is particularly advantageous in the current economic environment, where traditional fixed income investments may not offer the same level of returns.

Rick Rieder, BlackRock's chief investment officer of global fixed income, echoes these sentiments. He believes that the securitized products sector offers relatively attractive valuations and can be a valuable addition to a diversified fixed income portfolio.

The securitized products sector presents a compelling opportunity for investors seeking high yields in the fixed income market. With yields surpassing 6% and favorable valuations, this often-overlooked sector is gaining traction among savvy investors. By exploring the potential of mortgage-backed securities, collateralized loan obligations, commercial mortgage-backed securities, and asset-backed securities, investors can enhance their portfolios and achieve impressive returns.

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