Active Mortgage Bond ETF Debuts

November 14, 2019

Today, WisdomTree launched an actively managed fixed-income ETF focused on mortgage-backed securities that are backed by the U.S. government or its agencies. The WisdomTree Mortgage Plus Bond Fund (MTGP) is subadvised by Voya Investment Management using macro and fundamental research, the prospectus says.

MTGP comes with an expense ratio of 0.45% and lists on the NYSE Arca.

According to Rick Harper, WisdomTree’s head of fixed income and currency, the mortgage debt space can provide investors with exposure to high quality credit with diversification and low volatility. He also notes that Voya is one of the preeminent managers in the space.  

Investment Approach

The fund can invest in securities issued by agencies such as the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corp. (FHMLC). The fund can invest in residential and commercial MBS among other debt securities, according to the document.

However, there are some limitations. The fund is limited to a 20% allocation to nonagency and privately issued debt and a 20% allocation to noninvestment-grade debt, the prospectus notes.

“This is not a place that has been particularly well served to date, and we see the opportunity there,” said Dave Goodson, Voya’s head of securitized debt. “Part of it is that there are still scars from the Financial Crisis. Certainly I would have to concede to you that securitized products were at the core of it.”

He notes that 10 years after the crisis the securitized markets are a much safer place, despite lingering scars, and indicates that the pendulum may have swung a bit too far in the opposite direction from when the Financial Crisis began. “But as an investor in those markets … I feel better protected than I ever have been,” Goodson added.

“The balance of factors right now points in favor of securitized. From a tactical standpoint even, we think it makes sense now to have an allocation to securitized products,” he said.

Currently, the largest fund in the MBS space is the passively managed $20 billion iShares MBS ETF (MBB).

 Heather Bell can be reached at [email protected]

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