ETF Of The Week: Big Flows Into Mortgage Fund

Year-to-date, investors have flocked to this mortgage-backed security ETF.

Reviewed by: Lara Crigger
Edited by: Lara Crigger

As the Federal Reserve starts pumping the brakes on its interest rate hikes, yield-hungry investors have begun to seek out fixed-income investments offering more yield than Treasurys alone.

So it's no wonder the $15.5 billion iShares MBS ETF (MBB), which tracks agency-backed mortgage-backed securities, has seen $3.1 billion in net investment inflows so far this year. That's the third-highest inflows of any ETF year-to-date.


Source:; data as of Feb. 28, 2019


Why have mortgage-backed securities (MBSs) been so popular? For starters, MBS ETFs offer significantly higher yields than other fixed-income vehicles. For example, MBB currently offers a yield of 3.73%, compared to an average yield for Treasury ETFs of 2.43% (read: "Big Yields From Mortgage Backed Security ETFs").

Furthermore, MBSs also exhibit higher risk-adjusted returns than other fixed-income instruments. Year-to-date, MBB has returned 0.78%, whereas the average Treasury ETF has returned 0.39% over the same period.


As the oldest and largest mortgage-backed security ETF, MBB is nearly twice the size of its nearest competitor, the $8.2 billion Vanguard Mortgage-Backed Securities ETF (VMBS).

Both are very similar funds, exhibiting profoundly deep liquidity. However, MBB trades on average $152 million of volume daily, compared with VMBS' $40 million. VMBS also has a slightly higher spread of 0.02%, compared to MBB's 0.01%.

The biggest difference seems to be in cost. With an expense ratio of 0.09%, MBB is 2 basis points more expensive than the Vanguard fund, which could make a difference to long-term buy-and-hold investors.

Yet MBB's ample liquidity makes it the ideal trading vehicle to express a short-term view, particularly on the impact of interest rates, which appears to be just what investors are doing right now.

Contact Lara Crigger at [email protected].

Lara Crigger is a former staff writer for and ETF Report.