The Regan Floating Rate MBS ETF (MBSF) seeks to provide income through exposure to floating-rate mortgage-backed securities, which are bonds backed by pools of adjustable-rate mortgages that reset their interest payments periodically based on prevailing market rates.
How It Works
MBSF employs an actively managed approach to select floating-rate mortgage-backed securities that adjust their coupon payments as interest rates change. The fund focuses on securities where interest payments float above a benchmark rate like SOFR or Treasury rates, providing potential protection against rising rate environments. Portfolio construction emphasizes credit quality analysis and duration management to optimize risk-adjusted returns while maintaining liquidity.
Key Features
- Newly launched in February 2024, offering early access to a specialized floating-rate MBS strategy with limited competition
- Provides 3.82% dividend yield with payments that potentially increase as interest rates rise, unlike fixed-rate bonds
- Zero expense ratio structure makes it cost-competitive for income-focused investors seeking rate-sensitive mortgage exposure
Risks
- This ETF can lose value if mortgage prepayments accelerate when rates fall, reducing the portfolio's floating-rate advantage and income potential
- Credit risk exists if underlying mortgage borrowers default, particularly during economic downturns when housing markets weaken significantly
- As a new fund with minimal assets, liquidity constraints could cause wider bid-ask spreads and tracking difficulties during market stress
Who Should Own This
Best suited for income-focused investors with medium risk tolerance seeking protection against rising interest rates over 2-5 year periods. Works as a satellite holding (5-15% of fixed income allocation) for those wanting mortgage exposure with floating-rate characteristics. Appropriate for investors comfortable with newer funds and credit risk.