SECR ETF: A Strategic Play in Rising Rates with Diversified Securitized Assets

In an era of persistent high interest rates, income-focused investors are increasingly turning to fixed-income alternatives that balance yield with resilience against volatility. The NYLI MacKay Securitized Income ETF (SECR) has emerged as a compelling option, leveraging its focus on structured credit assets and active management to navigate the challenges of a "higher-for-longer" rate environment. By targeting the Bloomberg U.S. Securitized Index and employing a disciplined top-down/bottom-up process, SECR offers a differentiated approach to core-plus fixed income, combining income generation with strategic risk mitigation.

Structured Assets: The Foundation of Income Resilience

SECR's portfolio is anchored in securitized assets, with 80% of its holdings in instruments such as commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), and agency/residential mortgage-backed securities (RMBS). This diversified mix provides exposure to sectors with predictable cash flows, such as mortgages, auto loans, and corporate receivables, while avoiding equity-linked risks. The top 10 holdings account for just 30.4% of assets, ensuring broad diversification across collateral types and issuers.

The ETF's below-investment-grade exposure—capped at 20%—adds yield without overexposure to speculative-grade debt. This strategy allows SECR to outpace traditional core bond funds: its trailing 12-month distribution yield of 5.06% exceeds the Intermediate Core-Plus Bond category average of 4.62%, as of June 2025.

Active Duration Management: Anchored to the Bloomberg Index

Duration—the sensitivity of bond prices to interest rate changes—is a critical risk in rising-rate environments. SECR mitigates this by actively managing its portfolio to stay within ±1.5 years of the Bloomberg U.S. Securitized Index's duration. This benchmark alignment ensures the fund avoids excessive duration risk while maintaining diversification across structured assets.

The fund's low portfolio turnover (0% in the latest data) reflects a "buy-and-hold" strategy, minimizing trading costs and tax implications. By focusing on securities with shorter or floating-rate features—such as adjustable-rate mortgages or CLOs with step-up coupons—SECR further reduces interest rate exposure.

Subadvisor Expertise: The MacKay Shields Edge

SECR is managed by MacKay Shields LLC, a seasoned fixed-income firm with $143 billion in assets under management. Its Global Fixed Income Team employs a dual-pronged approach:
1. Top-Down Analysis: Macroeconomic trends, including Fed policy and inflation forecasts, guide sector allocations. For instance, in a prolonged high-rate environment, the team favors floating-rate ABS or CMBS with embedded options to reset coupon payments.
2. Bottom-Up Security Selection: Rigorous credit analysis evaluates the creditworthiness of issuers and servicers, while stress-testing collateral values to withstand economic shocks.

This process has delivered results: SECR's year-to-date return of 3.4% (grade A) outperformed its category by 0.9 percentage points as of June 2025, demonstrating its ability to navigate volatility.

Derivatives: A Shield Against Equity-Like Volatility

To further dampen equity-linked risks, SECR uses derivatives such as interest rate swaps, TBA mortgage securities, and futures to hedge against rate fluctuations. For example, selling interest rate caps can protect against sharp increases, while TBA transactions allow the team to lock in favorable prices for mortgage-backed securities. These tools, combined with the structured nature of its holdings, create a portfolio less sensitive to broad market swings.

Risk Considerations and Investment Thesis

While SECR's strategy is designed to mitigate risks, investors should note:
- Credit Risk: Exposure to non-agency RMBS and CLOs carries higher default risk. MacKay Shields mitigates this via diversification and credit analysis.
- Liquidity: Structured products can face reduced trading volumes in stressed markets, though the ETF's focus on liquid, investment-grade assets minimizes this risk.

For investors seeking a core-plus fixed-income alternative, SECR offers a compelling value proposition. Its blend of structured assets, active duration management, and derivative hedging creates a portfolio that aims to deliver consistent income while shielding against the pitfalls of rising rates and equity volatility.

Investment Recommendation

In 2025, as the Fed maintains restrictive monetary policy, SECR's focus on structured credit and disciplined risk management positions it as a core holding for income-oriented portfolios. Investors seeking to enhance yield without taking on excessive equity or duration risk should consider allocating to SECR, particularly as traditional bonds face headwinds in a higher-rate world.

In conclusion, SECR ETF exemplifies how strategic asset allocation and active management can turn the challenges of a rising-rate environment into opportunities for income resilience. For those willing to embrace structured credit, this ETF offers a well-constructed solution to navigate the evolving fixed-income landscape.