While U.S. core ABS performance remains strong due largely to low unemployment, many investors are zeroing in their questions on some of the sector's non-core assets, according to Fitch Ratings in its 2019 Virtual Investor Video Series for structured finance.

Unemployment is at its lowest level (3.6 percent) in half a century and wages are still growing (albeit more slowly), which is an ongoing plus for core assets like credit cards, prime autos and even student loans. However, drilling down beyond the health of the macro consumer is where things get interesting according to U.S. ABS head John Bella. The more vulnerable areas of ABS are those with the highest concentrations of subprime consumers and are the ones Fitch is receiving incrementally more questions on from investors of late. It is no surprise that these subsets are where the most endemic evidence of late cycle behavior has emerged.

With performance among some deeper subprime auto originators already showing weakness, Bella added that the fact it's already happening in a benign market environment is cause for concern. The same holds true for marketplace lending ABS, with subpar performance in particular for recent vintages like 2016.

The same disconcerting parallels seen in subprime autos and marketplace (intensifying competition often from newer issuers; over-reliance on ABS as funding) have emerged even in non-consumer assets like aircraft ABS. Throw in a broader economic wildcard like trade tariffs and it raises even more questions as to the long term sustainability of some of the newer names in the space, according to Bella.

Video: 2019 Virtual Investor Meetings: U.S. ABS