Foreign Investment in Asset-Backed Securities Rise

There are a number of inflation hedging strategies that investors may want to consider, including real assets like gold or real estate. Digital assets like cryptocurrencies are also seeing investor interest these days.

One trend, according to a Housing Wire article, is asset-backed securities. These securities include MBS, which became popular before the financial crisis in 2008, spurring a flurry of regulatory measures that cleaned up the industry.

Now, they’re falling back in favor again as investors look for ways to hedge away inflation. As mentioned, foreign investors seem to be developing a taste for MBS.

“Foreign holdings of U.S. asset-backed securities stood at $1.562 trillion as of June 30 of 2021, up from $1.489 trillion as of the same date in 2020, according to preliminary data released by the U.S. Department of the Treasury,” the Housing Wire article says. “The Treasury report asset-backed securities (ABS) as including mortgage-backed securities as well as securities backed by the cash flows from other asset pools, such as credit card receivables.”

An easy and convenient way to get MBS exposure is through an exchange traded fund (ETF) wrapper. One fund to consider is the Vanguard Mortgage-Backed Securities Index Fund ETF Shares (VMBS A+).

VMBS seeks to track the performance of a market-weighted mortgage-backed securities index. The fund employs an indexing investment approach designed to track the performance of the Bloomberg U.S. MBS Float Adjusted Index, which covers U.S. agency mortgage-backed pass-through securities.

To be included in the index, pool aggregates must have at least $250 million currently outstanding and a weighted average maturity of at least one year. All of the fund’s investments will be selected through the sampling process, and under normal circumstances, at least 80% of the fund’s assets will be invested in bonds included in the index.

For more news, information, and strategy, visit the Fixed Income Channel.