FlexShares, the exchange traded funds unit of Northern Trust (NasdaqGS: NTRS), today introduced the FlexShares Disciplined Duration MBS Index Fund (NasdaqGM: MBSD).
The new ETF consists of mortgage-backed securities issued by the Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) or the Government National Mortgage Association (GNMA or Ginnie Mae).
MBSD “targets an average effective duration of 3.75 years, with an admissible range between 3.25 and 4.25 years,” according to a statement issued by FlexShares.
MBSD will compete with the likes of the iShares MBS ETF (NYSEArca: MBB) and the Vanguard Mortgage-Backed Securities Index ETF (NasdaqGM: VMBS). However, the new FlexShares fund offers some different features for income investors that have warmed to MBS funds due to excellent credit quality and yield. [Investors Warm to MBS ETFs]
“Legacy MBS products typically track market-weighted MBS indexes having duration extension and contraction risks that require frequent monitoring and adjustment by the investor,” according to FlexShares.
However, MBSD attempts to temper duration and contraction risk that can be caused by mortgage prepayments, among other factors.