By Josh Ortner
  • Access the very large domestic mortgage-backed bond market in a single fund with an expense ratio of just .08%.
  • MBB offers broad exposure to a range of U.S. mortgage-backed bonds with a steady 2.4% SEC Yield & a annual standard deviation of just 2.2%.
  • The domestic mortgage market still looks very attractive compared to other areas of fixed income which has seen huge premiums.

On December 11, investment manager Jeffrey Gundlach was asked by CNBC to name what area of the bond market still looked very interesting to him? Without missing a beat, Gundlach stated that mortgage bonds are still attractive, especially when you compare them to other areas of the bond market. The mortgages he was talking about were probably non-agency issued mortgage bonds that his mutual funds own, which are doing very well.

However, if you are like me and even more conservative when it comes to risk, the iShares MBS ETF (MBB) will fit the bill for you with agency backed mortgages. MBB is a very stable ETF, which has over $20 billion in assets and plenty of track record to see how it holds up in time of financial crisis as well. I would like the reader to take away another bond ETF to add in the future as you look to be cautious ahead of a record year in equities.

The Investment Objective

Why would you want to purchase MBB? Since 2007, MBB has earned short-term bond investors a CAGR of 3.5%, while only experiencing 2.68% in annual volatility. According to iShares, MBB seeks to track the investment results of an index composed of investment-grade mortgage-backed pass-through securities issued and/or guaranteed by various U.S. government agencies. This means simply to you that the United States government has your back in times of a liquidity crunch, just like we saw in 2008.

For the skeptic in you who doesn’t want to believe an asset actually made money in the financial crisis, take a look at the below chart:

iShares MBS ETF Total Return Price Change

Data by YCharts

As you can see from the above chart, MBB actually made money in 2008, earning over 7.75%, during the deepest crisis since the Great Depression. For any retired income investor out there, MBB is a must own fund in your primary investment objective of keeping capital low volatile, while earning a little income.

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