Zachary Aronson, Director at MacKay Shields, joined Keith Black, Managing Director of RIA Channel, to discuss securitized fixed-income markets.
Securitized assets are backed by pools of cash flows generated by assets such as credit cards, auto loans, residential mortgages, commercial mortgages, and corporate loans. The securitized market is complex and underrepresented in many fixed-income funds. The Commercial Mortgage-Backed Securities (CMBS) market is $1.7 trillion and 1.6% of the index, while Asset-Backed Securities (ABS) have about $850 billion outstanding and comprise 0.5% of the weight of the index. Mortgages backed by government agencies such as Fannie Mae, Freddie Mac, and Ginnie Mae have $7 trillion outstanding and represent about 25% of the Bloomberg Aggregate Bond Index. Securitized assets can be seen as complements to corporate credit, as agency securities are guaranteed by government-sponsored agencies. Agency MBS are currently trading at wider spreads compared to their historical levels and corporate credit.
The NYLI MacKay Securitized Income ETF (SECR)* is a dynamic, actively-managed fund seeking opportunities in the securitized asset markets, including ABS, Residential Mortgage-Backed Securities (RMBS), CMBS, and Collateralized Loan Obligations (CLOs). This fund diversifies across investments in consumer credit, mortgage credit, and commercial real estate. Some of the fund’s assets can outperform in a weak macro environment, as there is no exposure to unsecured corporate credit as is typically found in corporate bond funds. Seasoned residential mortgages have built up significant equity which reduces credit risk, as a 70% loan-to-value mortgage issued in 2021 or earlier may now have 60% equity or a 40% loan-to-value ratio.
*Effective 8/28/24, IQ MacKay Securitized Income ETF was renamed NYLI MacKay Securitized Income ETF
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NYLI MacKay Securitized Income ETF (SECR)
Before considering an investment in the Fund, you should understand that you could lose money.
All Investments are subject to risk and will fluctuate in value. The Fund is a new fund. As a new fund, there can be no assurance that it will grow to or maintain an economically viable size, in which case it could ultimately liquidate. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk which is the possibility that the bond issuer may fail to pay interest and principal in a timely manner. High yield securities generally offer a higher current yield than the yield available from higher grade issues, but are subject to greater market fluctuations, are less liquid and provide a greater risk of loss than investment grade securities. Diversification cannot assure a profit or protect against loss in a declining market. Asset-backed securities are subject to credit risk, extension risk, interest rate risk, liquidity risk and valuation risk. The impairment of the value of collateral or other assets underlying an asset-backed security, such as a result of non-payment of loans or non-performance of underlying assets, may result in a reduction in the value of such asset-backed securities and losses to the Fund. Investments in mortgage-related securities make an investor more susceptible to adverse economic, interest rate, political or regulatory events that affect the value of real estate. Mortgage-related securities are also significantly affected by the rate of prepayments. Impairment of the underlying obligations or collateral, such as by non-payment, will reduce a mortgage-related security’s value. The Fund may invest in derivatives which may amplify the effects of market volatility on the Fund’s Share price.
The Bloomberg U.S. Securitized Bond Index is comprised of predominately MBS Agency securities, but also includes ABS, CMBS and covered securities.
Consider the Funds’ investment objectives, risks, charges, and expenses carefully before investing. The prospectus and summary prospectus include this and other information about the Funds and are available by visiting the Prospectus. webpage Read the prospectus carefully before investing.
Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, Member FINRA/SIPC.
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