IndexIQ launches securitized income ETF

Jun 12th, 2024 | By | Category: Fixed Income

IndexIQ has introduced a new actively managed ETF aimed at capturing high-income opportunities within the US securitized fixed income market.

Neil Moriarty, Senior Managing Director, co-Head of Global Fixed Income Team, MacKay Shields

Neil Moriarty, Senior Managing Director, co-Head of Global Fixed Income Team, MacKay Shields.

The IQ MacKay Securitized Income ETF (SECR US) has been listed on NYSE Arca with an expense ratio of 0.40%.

Securitization refers to the process of bundling together pools of financial assets (such as residential and commercial mortgages, credit card receivables, auto loans, and student loans) to create new securities which are then divided and sold to investors in different tranches.

These types of investments can help diversify traditional fixed income portfolios consisting of Treasury and corporate bonds by potentially reducing credit risk, dampening overall duration, and increasing average credit quality.

From a wider portfolio perspective, securitized assets may serve as a strategic overlay to bolster resilience against equity volatility while seeking to generate income.

Investment approach

SECR is managed by Neil Moriarty, Michael DePalma, and Zachary Aronson of the MacKay Shields’ Global Fixed Income Team, who have overseen securitized product strategies since October 2019 and have a track record spanning multiple credit cycles.

The fund invests in a diverse range of investment-grade securitized products, including mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, and asset-backed securities. It aims to maintain a weighted average duration within +/- 1.5 years of the duration of the Bloomberg U.S. Securitized Index, with the flexibility to allocate up to 20% of its total assets to securities rated below investment grade.

The investment strategy combines top-down macroeconomic analysis with bottom-up security selection to deliver a total return, emphasizing current income. Selection is based on rigorous analysis to evaluate a security’s potential for total return and its sensitivities to changes in interest rates, volatility, the shape of the Treasury yield curve, and prepayment variations. The quality of the collateral and the issuer or servicer is also carefully considered.

Neil Moriarty, Senior Managing Director, co-Head of Global Fixed Income Team, MacKay Shields, commented: “Securitized debt varies greatly across collateral types and structures. MacKay’s Global Fixed Income Team leverages its broad experience to identify opportunities across the universe of structured products that offer diversification benefits, higher ratings, predictable cash flows and, in some cases, lower interest rate sensitivity. If we are in fact in a ‘higher for longer’ rate environment, an approach that underpins SECR can be a very powerful tool for income-focused investors and advisors.”

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