The SEI Secured Income Fund (The Fund) has demonstrated strong performance since its inception, delivering a 11.4% annualized return over the last three years while focusing on high income, income stability, and low interest-rate risk. We believe institutional investors seeking diversified exposure beyond traditional fixed-rate bonds can benefit by investing in securitized assets, which can offer attractive returns due to their complexity while providing inherent structural protections.

Seeking high income with low interest-rate risk 

As at 30 September 2025, the SEI Secured Income Fund posted a three-year annualized return of 11.4%. We have been pleased with the Fund’s results and believe it has met its primary objectives of high income, stability of income, and low interest-rate sensitivity. 

We developed the strategy in 2022 to meet the needs of institutional investors seeking a consistently high level of income with relatively low default risk and low interest-rate risk. These multiple objectives can be challenging to achieve when relying solely upon traditional fixed-rate government bonds and corporate credit. 

Since securitized assets typically consist of consumer or real-estate debt (whereas investment-grade corporate bonds and high-yield bonds consist of corporate debt), we determined that a portfolio could acheive greater diversification by collateral type through an allocation to securitized assets. This enhancement would have the potential to benefit a portfolio in a market where stress is concentrated in the corporate sector. 

How does the Fund achieve high levels of income? 

The Fund seeks to generate an attractive level of yield by investing in securitized sectors that offer high income. These sectors’ higher yields are driven by the so-called complexity premium—the additional return that comes from investing in more complicated assets. 

Securitized assets are by nature more complex than corporate or sovereign bonds. Given their structure, they require specialized expertise to evaluate, which may result in market inefficiencies that are less prevalent in more conventional forms of credit. Some structures may also exhibit lower levels of liquidity, especially when it comes to smaller deals. Prudent management of liquidity risk is an important part of any actively managed strategy. 

Investors with underwriting expertise in this market can capture the complexity premium without taking on substantial risk. For example, Exhibit 1 shows that option-adjusted spreads (OAS) for securitized assets meaningfully exceed those for BBB rated corporate bonds, highlighting the relative attractiveness of securitized markets given their greater level of complexity.

 

Inherent and structural protections 

Allocations to securitized debt also offer inherent protections that mitigate the Fund’s risk of large drawdowns. These products are secured by direct claims on specific assets, often leading to higher recovery rates in default scenarios. Over time, the Fund’s focus on structured products has the potential to provide more stable income relative to unsecured corporate credit.

 These structural protections include subordination, overcollateralization, reserve accounts, and excess spreads. Subordination, the most common feature, divides securitized assets into tranches with different payment priorities. Senior tranches receive payments first and are therefore less risky, while subordinated tranches absorb losses but provide credit support to higher-rated tranches. Exhibit 3 illustrates the cash flow waterfall in an asset-backed security (ABS) structure, highlighting how senior tranches are prioritized and equity tranches absorb losses.
 

Income with low interest-rate sensitivity

In addition to attractive yields and structural protection, the Fund also seeks to minimize interest-rate sensitivity. Its focus on floating-rate assets, which reset periodically and therefore have limited exposure to interest-rate movements, helps to facilitate this objective. 

For example, collateralized loan obligations (CLOs) fit this description, since they are backed by floating-rate bank loans. Similarly, other securitized sectors such as commercial mortgage-backed securities (CMBS), home-equity lines of credit, and credit-card receivables also exhibit low rate sensitivity. 

Exhibit 4 shows the Fund’s allocation to floating- versus fixed-rate assets since its inception. The portfolio has maintained a strong bias toward floating-rate exposure, helping to insulate it from rate volatility.

 

Bringing it all together 

Since inception, the SEI Secured Income Fund has consistently delivered on its strategic objectives: high income generation, stability of income, and disciplined risk management. With a current three-year track record of an 11.4% annualized return and under 4% volatility, the Fund has provided a compelling risk-adjusted return profile, as evidenced by a 2.3 Sharpe ratio. The Fund has demonstrated discipline at managing risk, particularly through stress events such as the 2023 regional-banking crisis and ongoing rate volatility. 

As of September 2025, the Fund offers a 10.1% portfolio yield, a 619-basis-point option-adjusted spread, and effectively low duration. Its focus on floating-rate assets has insulated the portfolio from rate risk while maintaining attractive yield levels. Despite the Federal Reserve’s current rate-cutting cycle, we believe that attractive spread levels will more than compensate for any lack of duration tailwind. The Fund’s allocations—CLOs (52.4%), CMBS (38.6%), ABS (5.5%), and residential mortgage-backed securities (3.5%)—provide diversification and resilience across economic cycles. 

This diversification has proven valuable during sector-specific stress events, allowing the Fund to maintain stability while capturing opportunities. Risk management anchored in structural protections, such as subordination and overcollateralization, has further limited drawdowns. Additionally, active management through strong credit research and issue underwriting helps avoid problem credits and structures. 

Looking ahead, the Fund is well-positioned to benefit from a potentially favorable regulatory environment (i.e., deregulation), and growing institutional demand for high-income, low-duration solutions. The strategy’s reliance on deep technical expertise and its ability to capture complexity premiums create a sustainable competitive edge. 

The SEI Secured Income Fund offers a differentiated solution—combining yield, protection, and adaptability. Its proven performance and strategic positioning make it a valuable complement for institutional portfolios seeking consistent, high-quality income.

 

Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information. 

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. 

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI. 

There are risks involved with investing, including loss of principal. The value of an investment and any income from it can go down as well as up. Investors may get back less than the original amount invested. Returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Investment may not be suitable for everyone.

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The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the strategies or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. 

Information issued in the U.K. by SEI Investments (Europe) Limited, 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR which is authorised and regulated by the Financial Conduct Authority. Investments in SEI Funds are generally medium- to long term investment.