Before investing in any particular asset class, investors should do some proper research to better understand what drives its performance. This is especially true for those currently considering investing in mortgage-backed securities (MBS). A recent article from Eaton Vance broke down exactly why it is important to closely evaluate the MBS market.
In the article, Alexander Payne, MBS, examined the return potential that can be available to MBS investors. Payne noted that across bond coupon rates, MBS returns had a spread of nearly 630 basis points.
For investors willing to do the research, a number of factors can explain why the return dispersion seems so vast. Namely, the article highlights how the Fed’s rate-cut fight, post-election jitters, and uncertainty over inflation can be accountable for much of this confusion.
Keeping all of this in mind, it’s clear why thorough research can be invaluable for navigating MBS exposure. Investors who know which MBS sectors to focus on may have an advantage over a traditional indexed strategy.
“When it comes to the agency MBS market, headline index figures can conceal more than they reveal about actual investment potential within the sector,” Payne said. “Taking a deeper look at returns, duration and index weights and the dynamics behind relative pricing are key for investors seeking to earn alpha in this market.”
One way investors can opportunistically play the MBS market is through an actively managed ETF. Active ETF teams can more adaptively position their investments to better capitalize on ongoing market trends.
EVTR Offers an Alternative Take on MBS Exposure
For example, take a look at the Eaton Vance Total Return Bond ETF (EVTR ). EVTR is an actively managed fund that offers a core-plus portfolio of fixed income securities.
Investors may look at a core-plus fixed income ETF and assume it cannot be used as an MBS play. However, that is not the case for EVTR.
As of December 31, 2024, MBS investments accounted for nearly 30% of EVTR’s total portfolio. This MBS allocation constitutes the largest sector exposure for the fund as a whole.
EVTR’s portfolio constitution creates an interesting opportunity to engage with the MBS market. The fund’s active team can examine the MBS market and select the best potential securities to add to the fund. From there, EVTR’s remaining portfolio can provide crucial diversification to blunt the risk of downturn among MBS returns.
Regardless of how traders intend to use the fund, EVTR continues to see investor support through strong fund flows. The fund currently has well over $1.3 billion in assets under management.
For more news, information, and analysis, visit The ETF Yield Channel.
