The Virtus Newfleet ABS/MBS ETF (VABS) seeks to provide current income by investing in asset-backed securities (ABS) and mortgage-backed securities (MBS). These fixed-income instruments represent claims on underlying pools of consumer loans, mortgages, and other receivables, offering higher yields than traditional government bonds.
How It Works
VABS employs an actively managed approach, with portfolio managers selecting ABS and MBS based on credit quality, yield potential, and duration characteristics. The fund focuses on investment-grade securities while opportunistically investing in higher-yielding non-agency mortgage securities. Portfolio construction emphasizes diversification across asset types, credit ratings, and maturity dates, with regular rebalancing to optimize risk-adjusted returns and maintain target duration exposure.
Key Features
- Active management allows tactical positioning across ABS/MBS sectors based on market conditions and relative value opportunities
- Targets higher yields than traditional bond ETFs through exposure to consumer credit and mortgage markets
- Provides access to specialized fixed-income sectors typically difficult for individual investors to access directly
Risks
- This ETF can lose value if interest rates rise significantly, as bond prices move inversely to rates, potentially causing 5-15% declines
- Credit risk exists if underlying borrowers default on loans backing the securities, particularly during economic downturns affecting consumer spending
- Prepayment risk occurs when borrowers refinance early, forcing reinvestment at potentially lower yields and reducing expected income
Who Should Own This
Best suited for income-focused investors with moderate risk tolerance seeking higher yields than government bonds over 3-5 year time horizons. Appropriate as a satellite holding representing 5-15% of fixed-income allocation. Works well for investors comfortable with credit risk who want professional management of complex mortgage and asset-backed markets.