BlackRock slashes fees on iShares MBS ETF

Jul 17th, 2017 | By | Category: Fixed Income

BlackRock has reduced the fees charged on the iShares MBS ETF (NYSE Arca: MBB) from 0.27% to just 0.09%.

BlackRock slashes fees on iShares MBS ETF

The iShares MBS ETF (NYSE Arca: MBB) provides access to AAA-rated mortgage-backed securities issued by three agencies (Ginnie Mae, Fannie Mae and Freddie Mac) backed by the US government.

MBB tracks the Bloomberg Barclays US Mortgage Backed Securities Index, composed of a broad range of investment-grade mortgage-backed pass-through securities issued and/or guaranteed by US government agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac.

According to BlackRock, the agency mortgage-backed securities markets are among the largest and highly traded financial markets in the world, attracting large capital flows from global investors. However they remain largely over-the-counter and can be cumbersome. By lowering the price on MBB, the firm is positioning MBB to become a leading financial instrument and risk management tool for institutions to access physical mortgage pools.

“BlackRock’s founders pioneered the MBS markets and managing mortgage risk is deep in our firm’s DNA,” said Martin Small, US head of iShares at BlackRock. “With a looming unwind of the Federal Reserve’s $2 trillion mortgage portfolio, now is the time for investors to consider MBB for a core part of any MBS investment strategy.

“By lowering the price to make the fund competitive with direct investment in mortgage securities, institutions will have a much more efficient, liquid option for dynamically managing mortgage-backed exposures. Clients have responded positively to past efforts by BlackRock to lower prices on certain products in order to offer them new ways to access specific exposures. Much as we did in launching iShares Core in 2012, or the repricing of our emerging markets bond ETF EMB in March of 2015, we are tapping new client segments for growth.”

MBB has over 430 holdings with exposure to AAA-rated securities primarily in the 5-7 years (44.9%), 3-5 years (25.9%) and 7-10 years (25.8%) maturity brackets. The fund has a 2.8% current yield and an effective duration of 4.3 years.

Launched in March 2007, the fund has grown to over $10.1 billion in assets under management.

Small added: “Already the industry’s flagship mortgage-backed securities ETF, we believe today’s repositioning of MBB will make the MBS market better by making the fund even more attractive to institutional investors in the $5.5 trillion mortgage market. It provides them with an efficient, liquid exposure to a market that they have previously accessed through bank inventory. The mortgage market is undergoing substantial change, creating new investor challenges, and requiring more tools to manage risk efficiently.”

In Europe, BlackRock offers the iShares US Mortgage Backed Securities ETF (LON: IMBS) which tracks the same index as MBB. The fund has a total expense ratio of 0.28% and assets of $290 million.

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