MBB ETF

The iShares MBS ETF mainly consists of mortgage-backed securities from Ginnie Mae, Fannie Mae, and Freddie Mac. It follows the Bloomberg U.S. MBS Index and seeks to mirror its investment performance. We will assess how this ETF fits into your portfolio and determine if you are adequately exposed to it.

The Fed's pivot has positively impacted stocks and led to a surge in the mortgage-backed security space. iShares MBS ETF offers low credit risk and exposure to fixed-rate, investment-grade MBS issued or guaranteed by U.S. government agencies. MBB's portfolio includes top issuers such as Fannie Mae, Freddie Mac, Ginnie Mae, and Uniform MBS, providing diversification in the mortgage market.

With a higher interest rate environment, yield investors are looking for low-risk ways to make a high yield. Mortgage-backed securities offer a high single-digit yield for potentially no risk. The call premium on MBS is at a multi-year high.

iShares MBS ETF is a low-risk MBS vehicle with numerous talking points in store. The fund invests in high-grade mortgages backed by U.S. government agencies. We think its distributions will be sustained. However, its price return prospects remain at a crossroads.

The matter of negative convexity of mortgage-backed securities remains the key consideration as far as betting on a potential rate reversal goes. We are beginning to see signs of wholesale disinflation and loosening of the job market, so we are getting closer to when the Fed will have an opening to reverse. But negative convexity reduces the appeal of iShares MBS ETF as an instrument to bet on the turnaround, even though it has the innate leverage to rate news due to longer duration.