A shifting rate picture may be inviting investors to revisit their fixed income allocations, but rates alone don’t drive the deep-seated appeal of securitized debt. VettaFi’s recent Fixed Income symposium explored a few opportunity sets for investors in debt offerings, with securitized a standout category that can provide potentially greater returns than staid allocation to corporates, for example.
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The VettaFi Fixed Income Symposium’s segment “A Focus on Securitized Debt” saw leaders from DoubleLine and Fidelity Investments join VettaFi Head of Research Todd Rosenbluth to talk about the category’s merits right now. DoubleLine Capital portfolio manager Andrew Hsu and Fidelity Investments securitized manager Franco Castagliuolo joined Rosenbluth to discuss.
Securitized Debt Investing in 2025
The duo pointed to the sheer size of the securitized debt market as an important consideration for investors. Nearing some $10 trillion, they noted, investors have plenty of options therein — including countless offerings not correlated with other fixed income selections.
“You have a very diverse landscape of asset classes that you can actually invest in,” Castagliuolo said. “What I find so fascinating about it is it’s debt that literally impacts all of our lives on a regular basis, right from financing your house to the shopping mall that you’re buying your groceries at to the car that is being bought in your family."
The category’s ability to provide those differently correlated returns is a key draw, he noted. For Castagliuolo, bond portfolio theory emphasizes that point. In his words, that theory says that asset classes that aren’t perfectly correlated with other assets. Investors can “move out farther on the efficient frontier in terms of quality of returns.”
For Hsu, the key driver for the category comes from its reduced credit risk — in some cases, that risk is nonexistent. Government guarantees, he said, make securitized a low risk category that can still perform.
“The one thing I would say is, why should investors be interested in this space?” Hsu said. “It is a very liquid market. It’s very sizable. Trading is constant, even in the most difficult of times. But despite it not having credit risk, there is spread associated with this asset.”
“So a simplistic way to think about it is, for an investor who’s looking for a safe asset, such as treasuries, they should consider agency securitized products, or agency mortgage backed securities, agency CMBS, because it gives you some of those benefits, liquidity, safety, but also has this excess spread associated with it,” he added.
ETF Opportunities in Securitized
How might that relate, then, to the current market situation? While many investors may initially be revisiting their fixed income allocations because of the Fed’s cut, investors may want to think much longer term, Castagliuolo said.
“Most investors are exposed to two to three hundred Fed meetings over their career,” he said. “Don’t try not to become too obsessed about, are they going to go once or twice this year?”
The category, he added, has about two million securities in it. That far outpaces the five to 10 thousand corporate bonds available to investors, he said. That, and the intense focus provided, speak to the merits of active investing in securitized debt, per Castagliuolo.
Fidelity Investments offers its Fidelity Investment Grade Securitized Debt ETF (FSEC ) for a 36 basis point fee. The securitized debt ETF actively invests in securitized debt of any maturity in both residential and commercial categories. The fund has returned 7% YTD, beating both its ETF Database Category and FactSet Segment averages.
Looking ahead, securitized debt could provide a strong medium to long term opportunity set. For those looking to diversify their fixed income portfolio outside of corporates and munis, an ETF like FSEC may intrigue.
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