How Active ETFs Can Help You Better Navigate the Structured Credit Market

Structured credit is a broad term encompassing various securities across different sub-asset classes. But, the most popular structured credit products are non-agency mortgage-backed securities . Residential MBS (RMBS) are usually fixed-rate securities, whereas commercial MBS (CMBS) and collateralized loan obligations (CLOs) are based on floating rates.

When investing in structured credit, an experienced fund manager is essential to mitigate risk and maximize returns. That’s because structured credit is a broad field requiring expertise in everything from aircraft leasing contracts to credit card portfolio valuations. In addition, each type of structured credit product has its own risk factors and market dynamics.

Of course, it’s easy to see the value of these products in today’s environment. Higher interest rates are gutting bond prices, while the potential for a recession makes high-yield bonds risky. Structured credit products offer significant diversification and have historically had a low correlation with conventional asset classes, like stocks and bonds.

Angel Oak Capital Advisors recently launched the actively managed Angel Oak Income ETF (CARY) to provide investors with access to structured credit products. With a 0.79% expense ratio, the fund offers a timely alternative to conventional fixed-income products suffering from rising interest rates and the potential for deteriorating credit quality.

Leveraging their fixed-income experience, the fund managers use fundamentals-driven research to build a diversified portfolio of structured credit products. Unlike many legacy counterparts, the fund goes beyond non-agency mortgage-backed securities with a 40% allocation to asset-backed securities, collateralized loan obligations, and corporate debt.

In addition to meeting the demand for higher yields, the fund aims to diversify risks that arise from position sizing, geography, ratings, duration, deal structure, and collateral values while investing in securities with low volatility. As a result, the managers hope to mitigate fixed-income risks and generate better risk-adjusted returns for shareholders.

Check out Mortgage Backed Securities Funds page to explore all mutual funds and ETFs in this space.

Structured credit products offer investors a unique opportunity in today’s market. As fixed-income specialists with more than $20 billion in assets under management, Angel Oak Capital Advisors’ new Angel Oak Income ETF (CARY) provides investors with a high-quality way to capitalize on these opportunities, usually only available to institutional investors.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.