To be a reliable home for people’s hard-earned money, the Savings Fund must deliver safety and flexibility without compromise. That’s why every dollar of savings in the fund is backed by investments that have clear, defensive characteristics – assets designed to protect your capital while still earning a solid return.

At the very heart of this foundation are AAA-rated asset-backed securities – one of the most secure and resilient forms of investment in global markets.

What are asset-backed securities?

Asset-backed securities (or “ABS”) are investments secured against real, income-generating assets – things like houses, cars, or equipment. Instead of being a promise from a company (like a corporate bond), their safety is directly tied to the cash flows produced by those assets.

Here’s how it works: A lender such as a bank or non-bank lender bundles up a large pool of loans – for example, thousands of mortgages – and sells them to institutional investors as tradable bonds. These bonds are divided into different layers, known as tranches, each carrying their own level of risk and return.

You can think of it like a river flowing towards a series of cascading waterfalls: the interest and principal repayments from the underlying loans (the “water”) flows into the top pool first - the senior tranche. Only after that pool is full does the water then flow down to the lower pools (the mezzanine tranches), and finally to the lowest pool (the equity tranche). The higher up the waterfall you are, the quicker you receive repayment and the safer you are.

What makes AAA-rated bonds safe?

1. Layering

AAA-rated bonds benefit from a deep buffer of lower-rated tranches that absorb any defaults in the underlying loans first. In many structures, 20–30% of the loan pool would have to be completely eroded before the AAA bond begins to lose value. Translating that into real-world terms, 50–75% of all loans in a diversified pool would need to default before a AAA tranche loses principal – an extremely unlikely event even in times of extreme economic stress.

2. Diversification

Each bond is backed by thousands of loans – spreading risk broadly and reducing the impact of any single borrower.

3. Self-liquidating

Unlike many corporate bonds that repay investors in one lump sum at maturity, ABS bonds amortise – meaning as borrowers repay their loans, principal steadily flows back to bondholders. This reduces the risk of the bond over time and provides a constant flow of capital back into the Savings Fund.

4. Liquidity

The global asset-backed market is enormous – roughly US$25 trillion in size. And AAA-rated bonds trade actively in markets like the US, UK, and Australia - making them easy to sell if we ever wish to adjust the portfolio or the fund needs to raise cash quickly.

Why they’re attractive investments

For the Savings Fund, the appeal goes beyond just safety.

These assets consistently deliver higher yields for a given level of risk compared with traditional corporate bonds. For example, while a typical AAA-rated corporate bond might offer around 0.2% of extra yield over government bonds, a similar-rated ABS has a yield spread closer to 0.8% - four times as much despite lower historical default rates.

Why does this opportunity exist?

The extra return offered by AAA-rated ABS is mostly due to their complexity. Because understanding and analysing these structures requires deep expertise and modelling capability. Therefore, fewer investors participate, which creates a persistent opportunity for those who do.

Our team conducts extensive due diligence before investing. We analyse everything from the financial health of borrowers and the value of the underlying collateral to the legal structure of the deal and the waterfall of how repayments are distributed.

Every investment we choose for the Savings Fund must meet strict structural and credit-quality criteria, which we have refined over the last decade.

Why we choose these securities for savers

When you combine broad diversification, strong protection, steady repayments, and high liquidity you get an investment that’s exceptionally well-suited to a very low-risk Savings Fund like ours.

By providing the security, predictability, and flexibility needed to back on call savings, Wedge members get the comfort of a bank-like foundation, but with the added benefit of the efficiency, transparency and liquidity of financial markets.