New ETF Targets Risk-Averse Income Seekers

Regan Capital’s new ETF invests in floating-rate, mortgage-backed securities.

Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: etf.com Staff
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Edited by: James Rubin

For investors still nervously sitting on the sidelines in high-yielding money market accounts, ETF newcomer Regan Capital is pitching a unique solution—an ETF that invests in floating-rate mortgage-backed securities.

The Regan Floating Rate MBS ETF (MBSF), which went live Feb. 28, gives individual investors and financial advisors access to a market that has traditionally been limited to the largest banks.

Dallas-based Regan Capital, a 13-year-old firm that mostly manages partnerships and separate accounts, started a mutual fund in 2020 giving retail investors access to the broader mortgage market.

But unlike that $605 million Regan Total Return Income Institutional (RCIRX), which offers diversified exposure across the fixed income spectrum, MBSF focuses on the $400 billion market of floating-rate mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.

Creating an Income Alternative

Skyler Weinand, Regan Capital’s chief investment officer and managing member, believes the timing is ideal for a strategy investing in securities currently paying yields above 6%.

“Two years ago, the yields on these floating rate bonds were just 10 basis points above Treasuries, but today they’re 100 to 120 basis points above Treasuries, which is extremely cheap given there is essentially no credit risk,” he said. “Most other sectors in fixed income right now are trading at extremely rich and tight levels related to U.S. Treasuries.”

Weinand said the reason this corner of the $12 trillion mortgage-backed securities market is so appealing is because banks, as the traditional buyer of these securities, “have been in trouble and are shedding assets and selling paper.”

“It started two years ago when banks started dropping their mortgage bond holdings when the Fed started cutting rates,” he said. “Then you add to that, all the deposits that came in during Covid started leaving the banks.”

That double-whammy for banks effectively pushed yields higher on floating-rate mortgage-backed securities, which created an opportunity Regan Capital couldn’t pass up.

“As interest rates have risen 525 basis points in the last two years, floating rate strategies in fixed income have performed extremely well and have buffered investors from losses,” Weinand said. “We saw a huge need for folks sitting in money markets now and looking for ways to dip a toe into the water and get out of T bills and money market funds.”

He believes the most cautious investors are “searching for ideas to take the first step.”

“This is a really good strategy for what I call bucket one money of cash and cash alternatives,” Weinand added.

The actively managed MBSF, which is being seeded by $25 million invested over the first five trading days, charges 42 basis points.

While there are ETFs offering exposure to floating-rate corporate bonds, and there are ETFs tracking indexes of fixed-rate mortgage-backed securities, Weinand said an actively managed floating-rate mortgage-backed securities strategy is trickier to manage.

“It is hard and it does take work to go out and find these securities because we’re not just buying new issues,” he said.

In terms of why no other ETF issuer has tried the strategy, Weinand said, “there is no index for this.”

“And for the last 15 years rates have been abysmally low,” he said. “These securities were yielding 1% two-and-a-half years ago, and now they’re yielding over 6.5%, which means I’m picking up 120 basis points over money markets.”

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.