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TCW is a leading global asset management firm with over 50 years of investment experience and a broad range of products across fixed income, equities, emerging markets, and alternative investments. In each episode of TCW Investment Perspectives, professionals from the firm share their insights on global trends and events impacting markets and the investment landscape.
Welcome to the TCW Investment Perspectives Podcast, where
our investment professionals share their insights and
expertise on how to make the most of your portfolio.
I'm David Vick, the Managing Director in Fixed Income here at TCW.
And within Fixed Income Markets, we see securitized
credit as an area of opportunity for investors.
Today, Liza Crawford, TCW's Co-Head of Global Securitized Products,
is here to discuss what makes this market appealing right now.
Liza, welcome to the podcast.
Thanks, Dave.
It's a pleasure to be here.
Well, let's start with an introduction, giving
the listeners a bit of the lay of the land.
What is securitized credit?
How might it fit in a portfolio?
What makes it appealing at this point?
Absolutely.
So at a high level, securitized credit, you're looking at fixed
income securities where the underlying collateral profile
is really defining the credit performance of the bond.
So you've got a bankruptcy remote issuer, you don't have a corporate story.
And so as a result, you have a breadth of collateral
profiles and structural profiles to take advantage of.
And from an investment perspective, you can really orient your positioning,
whether you like residential credit or you like commercial credit or consumer.
Just to flesh that out even more, your commercial credit
can be things like commercial real estate, mortgage loans.
It can also be something like data center or
transportation, aircraft, container, etc.
And then on the consumer side, it can range from anything
from credit card receivables to student loans, auto loans.
And then on the residential side, certainly the behemoth.
You've got residential mortgage-backed securities, the
largest issuer, the government-sponsored enterprises.
But you also have a really active private
label market with no guarantee structure.
So bigger picture, securitized is excellent as a source
of kind of constant opportunity and really flexible to
take advantage of in a wide variety of portfolio types.
Great.
So I know that, you know, across strategies, we are broadly
overweight securitized across a wide range of subsectors.
At the same time, sort of balancing that
against an underweight in corporate credit.
What's the philosophy there?
What drives that sort of broad bias across portfolios?
Yeah.
So if we think about something like a core plus portfolio where you've got a
benchmark and you can take advantage of overweights and underweights versus
the benchmark, the story of being underweight corporate
credit and overweight agency MBS is very compelling.
The generalists are very active there.
We've got really tight levels of spreads for corporate credit.
And in the same breath, you've got a lot of technical
headwinds that faced agency MBS for a while now.
The current coupon is in the 130s.
It's certainly off of the wides in the most recent kind of couple of
years of 190s, but still in the 130s, it's significantly wide versus
corporate credit where spreads are in the 70s or 80s on the IG side.
So that's a straightforward kind of value rotation that the generals
have put on, for example, core plus and then in securitized credit.
So outside that guaranteed product, you're looking at kind
of a three and a half trillion dollar sector of these
different collateral flavors or something like core plus.
You're really oriented towards enhancing your carry.
You don't want to have any credit surprises.
You can take advantage of some trading alpha, but at the end of the day, you're
looking for high quality spread and you can take advantage of that across
private label residential where AAAs, for example, are in the 130s.
We've seen a little widening recently.
You can find some opportunities getting closer to the 140s.
You can find opportunities in things like single asset,
single bar, where CMBS, AAAs in the 120s to the 130s.
Then also things like CLOs can actively trade those.
A great example is, you know, they were as tight as kind of 115 on the AAA
earlier this year from a lot of ETF buying, kind of an uneconomic buyer.
And then you saw Liberation Day hit and a lot of
people were accessing the CLO market for liquidity.
You saw spreads get out into the kind of 160s.
So just highlighting that you can stay at the top of the capital structure
in securitized credit, still pick spread, have diversification in your
portfolio, and then have these idiosyncratic market events
or broader market events and take advantage of that.
You know, that's an example of Core Plus, but love to
spend some time on something like a flexible income or
an unconstrained kind of approach to securitized credit.
Yeah, well, maybe that's a good segue.
So in some of those maybe more aggressive strategies, where are some places
you think we're finding the best opportunities in securitized credit?
Absolutely.
So I really think in the unconstrained world,
that's where securitized credit can really sing.
So if you're looking at a portfolio like a flexible income, you're
going to look to securitize for something like 300 over spreads.
And you're going to be able to deliver that from
securitized credit in a really high conviction quality way.
And why is that?
Because, again, going back to that focus on bankruptcy remote issuance,
you're isolating your credit risk to that underlying collateral.
We've got collateral profiles that have been in the market for decades.
They've been through multiple cycles.
We've seen there's active servicing on the loans
that can help reduce the impact of a market event.
We had the COVID experience, right?
Everyone had to figure out, are they going to keep their jobs?
Can they pay their mortgages, etc.?
So we've seen really the broad-based impact of good servicing
at reducing kind of the worst case of default and losses.
So examples where we find kind of really attractive 300 over risk, certainly in
single asset, single borrower, CMBS, where you can find a trophy office property
with a 17-year weighted average lease term to largely investment-grade tenants.
And you're just active across the cap stack, but the rating agencies
are going to put some double B and single B non-rated labels
in there or ratings in there for the bottom of the cap stack.
That's a really perfect profile to take advantage of.
And then additionally, we've seen an
increase of digital infrastructure issuance.
We really like Fiverr to the premises and their master trust
structure issued most recently from one of the consolidated.
I forget if I'm allowed to say official names, but the
subs were coming through in the high 400s, 500 area.
That's a really attractive profile.
And then you've got the CLO market.
The CLO market, going back to the highlights of how you take advantage
of seniors or how you can be really defensive in your exposure to CLO.
In something like a core plus, you know, it is
the most liquid securitized credit expression.
It's also quite noisy, right?
It's the most liquid it's treating.
And then certainly in the last few months where everyone's worried about private
credit breaks, some corporate credit risk, we had the first brands, et cetera.
We've seen more repricing down the capital structure in CLOs.
And we love repricing.
We love any opportunity we have to put our fundamental
analysis to work and pick up some mispriced risk.
If something's got more headline risk than
fundamental risk, we want to take advantage of that.
We've got a really strong team on the CLO side.
And then, of course, we have the benefit
at TCW of being a CLO manager ourselves.
Awesome.
So that's a good overview of things we like.
Maybe given the headlines we've seen in CMBS with,
you know, AAA tranches taking write downs recently.
We've got the bankruptcy of Tricolor and some stress
on the ABS side, maybe concerns about the consumers.
Any parts of the market that we're staying away from
that you're leery about in the current environment?
Yeah, there's some great things to unpack there.
So first and foremost, we're always oriented towards credit.
We are always making sure that we like a credit.
We're not the type of shop where we're going to go buy something that we think
we're picking up 20 basis points of spread because it's a little hairier.
And then if you have a dislocation, that 20 bips
is now 200 bips, and then you've got a problem.
So that's really key.
What we did during the dislocation, particularly in CMBS and where you
mentioned some losses hit seniors and single loss to single borrower, we
leaned into mispriced extension stories and we leaned into misunderstood risk.
We did not chase defaulted seniors.
Some people did.
And that's where you can have some real pain points.
And then you can also have some largely maturity
defaults with with write downs that reach the seniors.
Those are severely disrupted assets.
The cash flow is broken there and the valuations made no sense.
So it just reiterates the importance of underwriting.
If somebody was less sophisticated in the
market, they might say, how could I get hurt?
It's a first lien.
I'm buying the triple A.
What could go wrong?
We don't export our credit view to the rating agencies.
We certainly appreciate them.
They work hard.
But you really have to stay on top of not only that
entry thesis, but ongoing surveillance to make sure
that the cash flows are standing up to what you expect.
So just emphasizing that, keep underwriting and
learning from what's going on in the market.
And then ideally, also, you're on the front foot to take advantage of some
market dislocations where risk might be oversold or the idiosyncratic
story bleeds into repricing that's more systemic
than perhaps would otherwise be realistic.
So you mentioned a couple of times there sort of work
that we do to sort of focus on credit work and the like.
Can you talk a little bit more about that, what we do,
how we do it, how we avoid some of those pitfalls that
maybe are starting to crop up more often these days?
The benefit of Securitize, I feel like I'm a walking salesman for Securitize,
but it is worth emphasizing, again, the bankruptcy remote nature.
So you don't have to worry about a lot of that kind of LME and intercreditor
violence that might be more pronounced in other segments of the market.
That's helpful in general.
And then kind of analyzing the credit profile.
You're going to have more operational risk for certain things like
a commercial real estate asset so that cash flow can evolve more.
You can have a little more kind of consumer defaults,
et cetera, for something like subprime auto.
So you're constantly kind of analyzing that.
And then we're always covering the market.
I feel like as an active asset manager, we don't
get enough credit in the markets right now.
Like privates are really popular and we take
advantage of them, too, and they're really important.
But there is a level of discipline that comes from being in the
market every single day, all day, through all different dislocations.
And it makes sure you should be looking into what's going on.
If you've put a bond out for bid and instead of 10 dealers
coming in at relatively close levels, you've got two people
sticking out and then only four others put in a bid.
There's something going on there that's an opportunity
around to write, be disciplined, kind of in sales.
And then the last thing, and maybe this sounds kind of high level, but you
understand the thesis of understand your collateral, understand the structure,
understand the market environment, understand that things can evolve.
If I use something that's very topical right now, data centers in the headlines.
And so that's a great market to just talk about.
It's growing significantly.
Now, the securitized market had about 13 billion of issuance in data
center and kind of ABS alone this year projected 25 billion next year.
At the same time, you've got syndicated construction
loans with 30 different banks as named some type of lead.
And the deal size alone is about 20 plus billion.
So you add a couple of those and you're well on your way to
dwarfing kind of what exposure we have in the securitized market.
But it's still growing.
I think it's become closer to 7% of some of the issuance.
So it's a sector you want to understand.
You want to understand how to take advantage of it for client portfolios.
You also want to understand kind of what to avoid.
So there you just kind of analyze the broader issuer base, how they
operate, the quality of the assets and your kind of thesis longer term.
So we really lean into kind of hyperscale.
We lean into longer kind of lease terms with IG tenants.
We like our core markets, things that can make
sense even if we were to have a demand pullback.
We've been reticent of age co-location.
We've been reticent of so much kind of AI build
with more latency and outside of core markets.
That exposure is a little less prevalent in the securitized market.
We tend to have more stabilized profiles
come through, but we are mindful of that.
And then importantly, when you think about a relative value spread
perspective, when you're looking at such significant new issuance
coming down the pipeline, you can naturally take a step back and
say, hold on, do I think spreads are going to go wider here?
They're going to be a better time to access the market.
So that's something we kind of constantly discuss.
And then, you know, when you consider TCW, we're
incredibly collaborative and team oriented.
We've got the generalists sitting on top of the
specialists in the different sectors to quarterback.
You know, there's a big effort right now to cross T's and dot I's
to avoid having any more layered exposure than otherwise might be
considered in some of these portfolios, because frankly, you know,
this financing is coming down every single capital markets pipe.
Great.
Last thing maybe is if you look forward into
2026, what are the things you're looking out for?
What do you think you think are going to be headlines or
what's going to drive markets over the next 12 to 14 months?
Yeah, well, all I want for Christmas is some volatility.
So, yeah, 2026, I think bigger picture, some of the themes
that we've had in 2025 are going to be here to stay.
So your major food groups in the market are going
to continue seeing, you know, strong issuance.
I think residential was an area with strong positive net issuance this year.
We'll see that continue next year.
Different profiles coming into the market to take advantage of.
And then the data center I highlighted, I think that's
going to be a really prominent sector for activity.
Also in commercial mortgage-backed securities, I think we'll see
some continued themes of maybe ongoing delinquency increases.
And things like Conduit in particular that have a little more BC
quality office, continued activity in single assets, single borrower.
It's funny, though, because you can have really big kind of positive
issuance, 150 plus billion, but your net issuance is closer to 15 billion.
So you're working real hard for your risk.
And then another theme that I'm really grateful for is just
the blend of public and private, you know, in securitized.
It just gives us a little more flexibility in portfolios
where clients are open to a little less liquidity to
kind of get the risk onto the books that we really like.
That we really understand and then pick up
some incremental spread for their benefit.
All right.
I know I said that was the last question, but
your response made me think of something else.
So I think it's an interesting dynamic, the difference
between public and private in the securitized sector.
How do you think about those differences?
What makes something public versus private?
What are the pluses and minuses of each one?
So how do you think about that world or that
meld of those two worlds in your portfolios?
Yeah, so I think it was Mark Rowan on the last Apollo earnings call
was saying how there's no difference between public and private.
One's syndicated, one's not.
And that's fairly accurate.
So if we think about the securitized market, we as asset
managers have been using quote unquote privates for a long time.
You could have some client profiles where loans were more
favorable from a capital treatment perspective than securities.
You could have circumstances where you can't get enough bonds into the
portfolio because there's net negative issuance or things are really tight.
So you're going to look towards privates to get the risk
profile that you like and pick up a little incremental spread.
You can also use privates and more structural flexibility if you're trying
to solve for that private IG senior or kind of a higher yielding sub.
So we've long used it.
And then what's been beneficial in the last few years is it feels
like more and more asset allocators are focused on the sector.
And they're looking at privates in a more expanded way than just
middle markets or private credit with a more corporate flavor.
Instead, they're also expanding that into securitized and how beneficial
to their portfolios to take advantage of the level of not only flexibility
with the variety of collateral profiles and diversification benefits
from securitized privates, but also the structural flexibility.
If you're looking for something that's a longer term fit for
a profile, there's a lot you can work with in securitized.
And then the firm, TCW, has been really proactive in
trying to engage with, you know, expanded ABF activity.
We've got our team based in New York City.
So there you've got the benefit of talent that is solely dedicated
to originating, which is helpful because we talked about it
earlier, the discipline in being a daily liquidity manager.
You know, we have quarterly liquidity products as well, but we're very busy.
So to have folks that are also kind of dedicated to
more of that project-oriented, originate source.
And then also, you know, they do a great job
marketing, you know, and being proactive.
Sitting here maybe 16 plus, I guess, years into my career, always in
securitized, all you ever want to do is find really excellent investment
opportunities and be able to take advantage of them for kind of
a broader suite of funds that you manage and you contribute to.
So it feels, you know, really healthy, the evolution of more
demand in privates and then, you know, TCW really being
well positioned to deliver client solutions in that space.
Well, that's all the time we have today.
Thanks, Liza, for joining me to discuss opportunities in securitized markets.
For more information on TCW strategies, please visit our website at tcw.com.
Thanks for listening.
And we'll pick up next time exploring more trends
and opportunities that are shaping global markets.
Thank you.
Thank you for joining us today on TCW Investment Insights.
For more insights from TCW, please visit tcw.com/insights.
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