Wall Street kicked off the month of September on a mixed note, with equities taking a slide on Tuesday following Labor Day; historically, September has always been a bad month for stock markets. Investors have been keeping a close eye on Europe in recent months, especially focusing on conflicts between Ukraine and Russia [see Annual GDP Growth: A Good Predictor of Single-Country ETF Returns?].
On Thursday, however, investors weighed an unexpected decision from the European Central Bank. The ECB announced that it has lowered all its interest rates, and that the central bank would buy asset-backed securities and covered bonds to spur the economy.
On the home front, U.S. jobless claims rose by 4,000 to 302,000, slightly above the expected 300,000. Private sector payrolls also came in below expectations, rising to 204,000 in August vs. the estimated 215,000.
In ETF news, FlexShares announced its launch of a new mortgage-backed securities fund.
The Disciplined Duration MBS Index Fund (MBSD) tracks an index that is designed to measure the performance of U.S. dollar-denominated 30-year, 20-year and 15-year fixed rate residential mortgage pass-through securities publicly issued by U.S. agencies. The U.S. Agency issuers are the Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) or the Government National Mortgage Association (GNMA or Ginnie Mae).
MBSD utilizes a disciplined duration approach, meaning it attempts to provide investors the investment benefits of MBS while seeking to limit effective duration extension and contraction variability caused by market factors including changes in mortgage prepayment assumptions. The fund targets an average effective duration of 3.75 years, with an admissible range between 3.25 and 4.25 years. MBSD charges a net expense of 0.20%.
Commenting on the new fund, Shundrawn A. Thomas, Executive Vice President and Head of Northern Trusts’ Funds and Managed Accounts Group, noted “With our ongoing focus on real-world investor needs, we developed this Fund as an income generation tool that offers investors the unique characteristics of the mortgage-backed securities (MBS) sector. The FlexShares Disciplined Duration MBS Index Fund is designed to help investors generate income and diversify their fixed income exposure while dampening the volatility that can result from duration risk.”
To delve further into this approach, be sure to read FlexShares’ investment case for MBS investing.
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Disclosure: No positions at time of writing.