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Securitised Credit

Adopting a global dynamic relative value approach – unlocking the best opportunities

Getting to know Securitised Credit

Securitised Credit delivers diversification benefits - given the low correlations to traditional fixed income, which makes the asset class appealing to institutional investors

Andrew Jackson, Managing Director, Head of Securitised Credit

In focus

  1. Securitised Credit Strategy Overview

  2. Effects of Interest Rate Movements on Securitised Credit

  3. Securitised Credit - Estimating Carbon Emissions

  4. Utilising Securitised Credit within your Asset Allocation

Why Securitised Credit?

  • Yield premium: Securitised Credit offers a pickup in yield to similarly rated corporate bonds. This is largely the result of complexity and illiquidity premiums. Adding Securitised Credit to an income portfolio can enhance portfolio yield without increasing credit risk or duration. This makes the asset class appealing from a cash flow perspective, making it potentially useful for clients requiring a Cash Flow Driven Investment solution
  • Diversification: The low interest rate sensitivity of Securitised Credit and its low correlation with traditional asset classes makes it an appealing asset class for institutional investors to consider from a diversification standpoint
  • Spread compression: With credit spreads remaining wide, Securitised Credit offers the potential for spread tightening and capital appreciation as the global economy begins to slow
  • Tranche structure: Securitised Credit enables diversified exposure to an illiquid, hard to access, asset class via a tranche structure. Investors in the senior tranche are exposed to less risk and therefore lower returns, as they receive interest and principal payments from the collateral first. Investors in the subordinate tranches are exposed to more risk, but greater return, as the tranches effectively provide 'leveraged' exposure to the collateral

Why HSBC Asset Management?

  • Active management: Opportunities move regularly in Securitised Credit and investors should be willing to move to unlock the asset class's wider potential. We focus on delivering value to clients by allocating to the best relative value ideas on a globally dynamic basis
  • Global approach: Many competitors focus on investing in the US or European markets only. We focus on delivering value by looking at the entire global opportunity set. This enables the team to be invested in every region, every sector and every rating. As well as providing access to specific US-only sectors such as Single-Family Rentals for European only investors
  • ESG integration: ESG is central to what we do so we have developed a proprietary scoring system where we look at the environmental, social and governance aspects of the investments that we make. We revisit that over the life of the holding. The outcome of this part of our process is that certain transactions may be excluded from our funds
  • Highly experienced team: Our team at HSBC holds an average of 18 years of experience. Each sector within Securitised Credit (e.g., CMBS, RMBS, CLOs) has a dedicated Portfolio Manager and Analyst, allowing a global value approach to be taken in unlocking the potential within Securitised Credit

Source: HSBC Asset Management as at 31 December 2023


Key risks

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.

  • Interest Rate Risk: As interest rates rise debt securities will fall in value. The value of debt is inversely proportional to interest rate movements.
  • Counterparty Risk: The possibility that the counterparty to a transaction may be unwilling or unable to meet its obligations.
  • Credit Risk: Issuers of debt securities may fail to meet their regular interest and/or capital repayment obligation. All credit instruments therefore have the potential for default. Higher yielding securities are more likely to default.
  • Default Risk: The issuers of certain bonds could become unwilling or unable to make payments on their bonds.
  • Emerging Markets Risk: Emerging markets are less established, and often more volatile, than developed markets and involve higher risks, particularly market, liquidity and currency risks.
  • Exchange Rate Risk: Investing in assets denominated in a currency other than that of the investor’s own currency perspective exposes the value of the investment to exchange rate fluctuations.
  • Investment Leverage Risk: Investment Leverage occurs when the economic exposure is greater than the amount invested, such as when derivatives are used. A Fund that employs leverage may experience greater gains and/or losses due to the amplification effect from a movement in the price of the reference source.
  • Asset Backed Securities (ABS) Risk: ABS are typically constructed from pools of assets (e.g. mortgages) that individually have an option for early settlement or extension, and have potential for default. Cash flow terms of the ABS may change and significantly impact both the value and liquidity of the contract.
  • Derivative Risk: The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade.
  • High Yield Risk: Higher yielding debt securities characteristically bear greater credit risk than investment grade and/or government securities.
  • Liquidity Risk: Liquidity is a measure of how easily an investment can be converted to cash without a loss of capital and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse markets conditions.
  • Operational Risk: The main risks are related to systems and process failures. Investment processes are overseen by independent risk functions which are subject to independent audit and supervised by regulators.

Further information on the potential risks can be found in the Key Investor Information Document (KIID) and/ or the Prospectus or Offering Memorandum.

Important Information

For Professional Clients and intermediaries within countries and territories set out below; and for Institutional Investors and Financial Advisors in the US. This document should not be distributed to or relied upon by Retail clients/investors.

Diversification does not ensure a profit or protect against loss. This shouldn't be considered as an investment advice.

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. The performance figures contained in this document relate to past performance, which should not be seen as an indication of future returns. Future returns will depend, inter alia, on market conditions, investment manager’s skill, risk level and fees. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade.

The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. This document is not contractually binding nor are we required to provide this to you by any legislative provision.

All data from HSBC Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified.

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NOT FDIC INSURED ◆ NO BANK GUARANTEE ◆ MAY LOSE VALUE

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Content ID: D033808; Expiry Date: 30.10.2025

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