WisdomTree launches actively managed mortgage bond ETF

Nov 18th, 2019 | By | Category: Fixed Income

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WisdomTree has launched a new actively managed ETF providing exposure to the mortgage-backed sector.

WisdomTree launches actively managed mortgage bond ETF

WisdomTree’s latest fund provides exposure to mortgage-backed securities and related securitized debt.

The WisdomTree Mortgage Plus Bond Fund (MTGP US) has listed on NYSE Arca and comes with an expense ratio of 0.45%.

The fund is sub-advised by Voya Investment Management which manages over $31 billion in securitized debt. The firm will combine macro and fundamental research in order to generate both income and capital appreciation for the fund.

The ETF primarily targets residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) that are guaranteed by the US government and its agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac.

In a bid to enhance the fund’s yield and diversification, it may also seek opportunities in other sectors of the securitized debt market including non-Agency RMBS, non-Agency CMBS, asset-backed securities (ABS), and collateralized loan obligations (CLOs).

Exposure to non-investment-grade securities will be limited to 20%, while exposure to non-agency issuers will be capped at 20%.

According to WisdomTree, many securitized debt sectors are much earlier in their respective credit cycles compared to corporate credit markets. Consequently, they are not facing headwinds of the magnitude typically associated with a late-cycle market.

The issuer also believes that the lack of substantial growth in mortgage securities relative to corporate debt can potentially provide a supportive credit environment for investors and generally attractive valuations.

Rick Harper, Head of Fixed Income and Currency at WisdomTree, commented, “In a continued low interest rate environment, we believe MTGP may be a compelling strategic option for investors seeking a generally more stable source of income through the types of mortgage-backed securities that have historically exhibited strong liquidity and limited credit risk.

“With an estimated $8.5 trillion, the market for Agency RMBS is generally considered to be deep and liquid, surpassed by only US Treasuries in terms of size and liquidity. Another $3trn in investment opportunities exist in other securitized debt sectors.

“We are pleased to be collaborating with Voya IM – a firm that has a long track record in this space – in launching this actively managed ETF and providing investors greater access to these opportunities.”

David Goodson, Head of Securitized Debt at Voya Investment Management, added, “Mortgage-backed securities and other types of securitized debt offer a unique diversifier and return opportunity that is sometimes not top of mind for fixed income investors.

“One of our motivations for being involved with the ETF was the lack of ETF options to add value through securitized debt. As a portfolio manager benched to the Bloomberg Barclays US Aggregate Bond Index, having a fund that could offer excess return potential from a sector comprising nearly 30% of the ‘Agg’ is extremely valuable.”

Investors looking for passive exposure to the MBS market may wish to consider the iShares MBS ETF (MBB US). The fund, which tracks the Bloomberg Barclays MBS Index, is the largest ETF covering this space with assets of more than $19.7bn. It is also one of the cheapest with an expense ratio of just 0.07%.

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