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ETF Chart of the Day: Mortgage Bond Bonanza


We have seen some selling pressure in the “benchmark” ETF name that tracks the Mortgage Backed Securities market, MBB (iShares Barclays MBS Fixed Rate Bond, Expense Ratio 0.31%) as the fund has seen about $150 million flow out via redemption activity.

Although in the context of the fund’s $5.5 billion asset base, perhaps this is not a consequential amount, and just the product of periodic institutional rebalancing.

In any case, it gives us a chance to highlight a segment of the greater Fixed Income market that does not receive regular attention but clearly has the ability to raise institutional assets. MBB debuted in 2007, and has had quite a run thus far into becoming the largest fund in the Mortgage Backed space, followed in terms of assets size by VMBS (Vanguard Mortgage Backed Securities, Expense Ratio 0.12%) which has about $445 million in AUM.

VMBS only debuted in 2009, so iShares clearly has the first mover advantage well established in the space. There has been some growth in terms of other product offerings that track Mortgage Backed securities, including MBG (SPDR Barclays Capital Mortgage Backed Bond, Expense Ratio 0.20%), CMBS (iShares CMBS, Expense Ratio 0.25%), GNMA (iShares GNMA Bond, Expense Ratio 0.32%) and COBO (ProShares USD Covered Bond, Expense Ratio 0.35%).

CMBS and GNMA for instance both debuted in 2012 and have raised $81 million and $29 million respectively since inception, respectable numbers given the limited track record and the specific “niche” designations of these funds. COBO remains small at $6 million in assets under management, this fund only debuting last year in 2012 as well.

The space clearly has legs in terms of opportunities for growth among investment managers, especially those with a specific fixed income focus in portfolios. In the past 5-6 years it is not at all uncommon to run into managers of Separately Managed Accounts with a strict fixed income focus using primarily or only fixed income ETFs within their investment methodology.

With the wide array of fixed income based ETFs flourishing in the marketplace today, investment managers can easily get outside of granular areas like Treasuries or Investment Grade Corporates for instance, and readily access something like Mortgage Backed Securities via a number of ETFs.

iShares MBS ETF

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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