The U.S. Mortgage-backed securities (MBS) market continues to be a significant component of the fixed-income landscape, offering investors exposure to the housing market through a relatively liquid and diversified asset class. Several exchange-traded funds (ETFs) provide access to this market, each tracking slightly different indices and offering varying levels of exposure to different types of mortgage securities.
Understanding the MBS Market
Mortgage-backed securities are bonds created by pooling together mortgages and selling them as investments. These securities are typically issued and/or guaranteed by U.S. Government agencies like Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC), providing a degree of creditworthiness. The Bloomberg U.S. MBS Index, as referenced by the Vanguard Mortgage-Backed Securities ETF, measures the performance of the U.S. Agency mortgage pass-through segment of the U.S. Investment grade bond market. The S&P U.S. Mortgage-Backed Securities Index similarly focuses on U.S. Dollar-denominated, fixed-rate and adjustable-rate/hybrid mortgage pass-through securities issued by these same agencies.
The appeal of MBS lies in their potential to provide current income and relatively high credit quality, though they are not without risk. As with all bond investments, MBS prices can decline as interest rates rise. Investors face the risk that an issuer may fail to make timely payments, although the agency guarantees mitigate this risk to a significant extent.
Key ETFs Providing MBS Exposure
Several ETFs offer investors a convenient way to gain exposure to the MBS market. The iShares MBS ETF (MBB) aims to track an index composed of investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. Government agencies. The Vanguard Mortgage-Backed Securities ETF (VMBS) tracks the Bloomberg U.S. MBS Float Adjusted Index, providing diversified exposure to intermediate-term U.S. Agency mortgage-backed pass-through securities. The State Street SPDR Portfolio Mortgage Backed Bd ETF (SPMB), established on , seeks to mirror the performance of an index tracking the U.S. Agency mortgage pass-through sector of the U.S. Investment grade bond market.
Performance and Fund Characteristics
As of , the State Street SPDR Portfolio Mortgage Backed Bd ETF (SPMB) was trading at 22.52 USD, with a minimal daily change of 0.01 USD, representing a 0.04% increase. The fund’s net expense ratio is 0.04%. Total assets under management for SPMB are 6.771 billion USD, with an average daily trading volume of 786,994.1 shares. The weighted average dividend yield is currently unavailable.
While specific performance data for the iShares MBS ETF and Vanguard Mortgage-Backed Securities ETF was not readily available, these funds similarly aim to provide exposure to the agency MBS market. Investors should consult the funds’ prospectuses and fact sheets for detailed performance information and risk disclosures.
Index Differences and Investment Strategies
The choice between these ETFs often comes down to the specific index they track and the investment strategy employed. The Bloomberg U.S. MBS Float Adjusted Index, tracked by VMBS, is a float-adjusted index, meaning it weights securities based on their availability in the market. The S&P U.S. Mortgage-Backed Securities Index, tracked by other funds, uses a market-value-weighted approach. SPMB aims to correspond generally to the price and yield performance of an index that tracks the U.S. Agency mortgage pass-through sector.
These differences in index construction can lead to slight variations in portfolio composition, and performance. Investors should carefully consider their investment objectives and risk tolerance when selecting an MBS ETF.
Broader Market Context and Outlook
The MBS market is influenced by a variety of factors, including interest rate movements, housing market conditions, and government policies. Rising interest rates generally put downward pressure on bond prices, including MBS. However, a strong housing market can support MBS prices by reducing the risk of defaults. The current economic environment, with its ongoing debate about the trajectory of interest rates and the health of the housing sector, makes careful analysis of the MBS market particularly important.
The recent performance of the Bloomberg US Aggregate index, which serves as a broader benchmark, shows returns of 6.16% in 2019, 4.19% in 2020, -1.46% in 2021, -12.05% in 2022, 5.09% in 2023, 1.35% in 2024, and 8.28% year-to-date in 2025, providing a point of comparison for MBS ETF performance. SPMB’s year-to-date return in 2025 is 0.79%.
Investors considering adding MBS ETFs to their portfolios should conduct thorough due diligence, reviewing the funds’ prospectuses, fact sheets, and performance data. Understanding the underlying index, investment strategy, and risk factors is crucial for making informed investment decisions.
