Investing in mortgage-backed securities doesn’t mean investors have to stay tied to a fund for years, thanks to targeted duration options like the FlexShares Disciplined Duration MBS Index Fund (MBSD).
MBSD seeks investment results that generally match the price and return performance of the ICE BofA Merrill Lynch, Constrained Duration US Mortgage-Backed Securities Index. The Underlying Index reflects the performance of a selection of investment grade mortgage-backed pass-through securities from US authorities.
“Many investors are looking for Mortgage-Backed Securities (MBS) as an option to diversify their bond holdings and achieve higher potential returns than are available on US Treasuries,” a FlexShares fund focus Article said. “However, when investing in MBS, special considerations must be made about duration – an important measure of the sensitivity of a fixed income security to interest rate movements.”
“We believe that duration has historically been an important factor in the risk and return of MBS and that investors need to continuously monitor the effective duration of an MBS portfolio due to the impact of mortgage prepayments,” added FlexShares.
As mentioned earlier, the fund aims to have a fixed duration in order to mitigate the effects of interest rate volatility.
“The index consists of stocks selected from the 10-year, 15-year and 30-year MBS universe,” added the fund focus. “The index aims for a monthly effective duration within a one-year band of 3.25 years to 4.25 years – with an average target of 3.75 years. This range was chosen to avoid greater fluctuation than might be necessary to meet the target duration. The index also takes into account factors such as current Federal Reserve policies, the outlook for US interest rates, and possible reforms to the agencies’ mortgage programs. “
Record exhibition by Ginnie Mae
The month of August saw state-owned companies Ginnie Mae issue a record volume of mortgage-backed securities. The issuance volume last month was $ 70.85 billion despite a decline in loan production.
“Although loan production is slowing, Ginnie Mae continues to see strong MBS issuance and steady investor demand, reflecting the broad appeal and value of the Ginnie Mae MBS program and its role in financing affordable home and rental properties,” said Ginnie Mae Deputy EPP Michael Drayne. “Our commitment to maintaining an innovative MBS program that produces the types of securities that investors demand and that issuers can use to help consumers buy homes in their communities drives our efforts every day.”
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