MBG: A Comps Leader With Stable Returns
Summary Fed backed mortgage securities are very safe and provide high interest payments. Of the 4 major mortgage security ETFs, MBG offers the most potential for the highest yields. MBG is well valued and backed by strong underlying assets. Introduction Fed backed mortgage securities are safe and reliable investments that provide high interest payments. Most mortgage backed securities, however, are too expensive for the average investor. Minimum investments generally reach as high as 25,000, for a mortgage pass-through. Additionally, MBS funds generally require a 1 million dollar minimum investment. MBS ETFs allow average investors to buy some exposure to a valuable fixed income security. There are 4 main players on the market, but the SPDR Barclays Capital Mortgage Backed Bond ETF (NYSEARCA: MBG ) offers the most potential for high yields. MBG Analysis There are many MBS ETFs on the market, but of those ETFs there are really four primary ETFs that offer attractive returns with minimal risk. The other MBS ETF options have too few AUM, poor liquidity, high expenses, inadequate exposure, poor returns, or risky underlying assets. For the sake of time, trust me when I say the proceeding four MBS ETFs are the best (and safest) choices, I included others in the link above. MBG is a strong MBS ETF. It holds over 151 million in total assets and it has a net asset value of 26.88. What sets MBG apart is its 12-month returns. Average yields fall between 1.4% – 2%, while MBG has 12 month returns in excess of 3.5%. It has a miniscule expense fee of 0.20%. MBG also exclusively holds AAA bonds and cash. MBG attains comparably optimal returns while maintaining an incredibly safe portfolio. All of MBG’s assets are also agency backed, which means they come with agency guarantee (or for Ginnie Mae’s the full faith and credit of the United States government). Comps Analysis What MBG lacks in total assets, exposure, and volume, It makes up with in asset strength and 12 month yields. Mortgage Securities Analysis Mortgage securities are inversely correlated to interest rates. With the possibility of an interest rate hike , one may want to wait for prices to decrease or adapt a long term-investing horizon. Capital appreciation, while possible, is a secondary objective when investing in mortgage securities. The stable distribution of fixed income payments ( in excess of treasury yields ), as well as portfolio diversification ought to be the primary objectives of MBS investing. In the long term, MBG’s volatility is negligible. To visually express this, I included a chart of the Vanguard Total Stock Market ETF ( VTI) (total market returns) and the ten year treasury rate. Conclusion Mortgage securities offer a valuable source of fixed income. They can be used by retirees as a stable form of income, or they can be used as a tool for portfolio risk diversification. There are four investable MBS ETFs on the markets. MBG, while the smallest, historically has offered the highest comparable yields whilst maintaining a 100% AAA rated portfolio. For this reason, I consider MBG to be an attractive buy. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.