Why are asset-backed securities appealing to investors?

Asset-backed securities (ABS) are indeed appealing to investors primarily because they offer regular income streams. These securities are created by pooling various types of debts—such as mortgages, auto loans, or credit card debts—and then issuing shares of this pool to investors. The cash flows from the underlying assets are typically paid out to ABS holders, providing them with consistent and predictable income over time. This feature is particularly attractive to income-focused investors looking for reliable returns.

While aspects like being backed by physical assets or potentially having higher credit ratings also add to the appeal of ABS, the key element that makes them especially enticing is the structured and regular income they provide. This is a central reason why many investors, including institutional ones, incorporate asset-backed securities into their portfolios as part of their income-generating strategy.

The idea of capital preservation is important for some types of investments, but ABS do not guarantee this; rather, they carry certain risks related to the performance of the underlying assets. Thus, while capital preservation is a valuable consideration, it does not specifically pertain to why ABS are generally favored by investors.