iShares MBS ETF

MBB

Market cap $39.4B

A compelling observation was made by Jeffrey Sherman, deputy chief investment officer at DoubleLine, on stage at the Astoria Advisors Macro Summit. He had just stated, “As a bond investor, I'm here to tell you that we're not special, but that we tend to be more risk-averse.

Real estate earnings season kicks into gear this week, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. One step forward, one back: Matching the stubborn performance pattern seen last year, REITs rallied ahead of the Fed's September rate cut but stumbled into the start of earnings season. In this report, we focus specifically on property-level fundamentals, previewing and forecasting REIT earnings performance based on an analysis of recent indicators across various sources.

On Wednesday, Texas-based Optas Capital disclosed the sale of 37,650 shares of the iShares MBS ETF for an estimated $3.5 million during the third quarter.

MBB offers higher duration exposure, attractive in a rate-cutting environment, but prepayment risks require extra yield compensation versus Treasuries. Crudely, around two-thirds of MBB's holdings are unlikely to be refinanced with a likely rate cutting path, so the current yield fairly compensates for mitigated prepayment risk, but not more. While the call premium between the Treasuries and mortgage rates has historically been lower, we think that is also well priced in the current, somewhat uncertain environment.

Mortgage-backed securities (MBSs) ETFs have, somewhat quietly, welcomed some big new players in the past year.  Just this week, Eaton Vance debuted the Eaton Vance Mortgage Opportunities ETF (EVMO).

On this week's episode of ETF Prime, Cinthia Murphy, investment strategist at VettaFi, highlighted several key shifts in the ETF landscape, including crypto ETF momentum. Later, Fundstrat's Tom Lee shares insights on the success of the Fundstrat Granny Shots US Large Cap ETF (GRNY) and ethereum's future.

The iShares MBS ETF's key variables suggest that it could be a U.S. treasury diversifier. The vehicle invests in secondary agency RMBS, which hold enough credibility to act as collateral for repo lenders. Moreover, underlying guarantors have the same credit ratings as the U.S. MBB ETF's standard deviation and max drawdown ratios are lower than those of an intermediate-term treasury vehicle called IEF ETF.

MBB is the largest MBS ETF in the market. Its 4.0% yield is slightly above-average, returns since inception below-average. It compares unfavorably to its peers in several key ways.

Real estate earnings season kicks into gear this week, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Following a year-end tumble that lingered into early 2025, REITs enter earnings season with a bit of upside momentum as Treasury Yields eased from the cusp of two-decade highs. Largely immune from trade/tariff and AI-related risk, REITs are coming back into favor after three years of historic underperformance, which has driven valuations to unusually "cheap" levels.

U.S. equity markets were little changed this week, while long-term benchmark interest rates surged as investors assessed the political and economic fallout from a disastrous debate performance by President Biden. Beneath the political drama, investors parsed corporate commentary and economic data that pointed towards a further slowdown in U.S. consumer spending, while inflation data showed a continued moderation in price pressures. Declining for just the second week in the past ten, the S&P 500 posted fractional declines on the week, but nevertheless held on to impressive first-half total returns of over 15%.