Investing in ABS and RMBS

The Asset Backed Securities (ABS) and Residential Mortgage Backed Securities (RMBS) markets, globally and domestically, are vast. Globally, S&P Global Ratings has forecasted 2024 issuance volume of ~USD 1 trillion.

In Australia, a very significant proportion of home loans, auto loans, trade receivables, personal loans and many other receivables are funded through these markets with outstanding of ~AUD 200 billion. Household names, including the four major banks, second tier banks, building societies and non-bank lenders use the ABS and RMBS markets, accessing investors from all parts of the world. For Australian regulated institutions, the issuance of ABS/RMBS is overseen by Australia’s banking regulator, APRA. Further, and with few exceptions, ABS and RMBS are rated by at least one of three global credit rating agencies.

What are ABS and RMBS?

Put simply and most commonly, when buying ABS or RMBS, you are buying a secured floating rate note that pays monthly income. Principal is repaid within about four years. Because of the way ABS and RMBS are structured, they offer your choice of credit risk, and returns.

ABS and RMBS are resilient, through the cycle product.

What are the benefits of ABS and RMBS?

• Choice– your choice of credit risk, returns, and interest paid monthly
• Higher yields– the opportunity to access higher yields for the risk taken
• Low risk– your investment is secured against multiple assets and there are low levels of arrears in residential mortgages
• Predictable income– receive monthly interest payments plus principal
• Transparency– you know the ratings, the risks and the returns expected

Competitive yields and low risk

ABS and RMBS investors have a choice: conservative investors have a choice of investment grade risk equal to the Commonwealth of Australia. For those investors wanting higher yield, and with a higher risk appetite, yields range from BBSW +2.5% up to BBSW +6%. Over decades in Australia, even the highest risk, highest yielding ABS and RMBS have virtually never lost investors a cent.

While ABS and RMBS are a generic financing technique, no one ABS and RMBS security is exactly the same. IAM has committed to providing its clients access and knowledge to ABS and RMBS markets, with this offering led by Tony Perkins who has years of experience in ABS and RMBS markets.