FlexShares today launched the FlexShares Disciplined Duration MBS Index Fund (MBSD), joining a small circle of exchange-traded funds focused on mortgage-backed securities (MBS).
This new ETF from FlexShares, a unit of Northern Trust, provides exposure to pass-through securities backed by pools of mortgages and issued by U.S. government agencies including Fannie Mae, Freddie Mac and Ginnie Mae.
The fund tracks the BofA Merrill Lynch Constrained Duration US Mortgage Backed Securities Index, which comprises 125 securities and is rebalanced monthly. The securities tracked by the fund currently hold Aaa (Moody's), AAA (Fitch) and AA+ (S&P) ratings.
According to FlexShares, the portfolio’s average effective duration will typically range between 3.25 and 4.25 years. Duration, which is calculated as a number of years, measures the price sensitivity of fixed-income securities when interest rates change.
Dividends are expected to be paid monthly, and the fund’s net expense ratio is 0.20 percent.
The FlexShares fund joins a handful of existing MBS-centered ETFs from iShares, Vanguard, State Street and Barclays. The iShares MBS ETF (MBB) is by far the largest in terms of size (nearly $6.2 billion in assets) and trading volume. The reported SEC yields for the group range from 1.23 percent to 2.21 percent.