Do Not Buy A Mortgage-Backed Security ETF

I know what you are thinking, mortgage-backed securities, aren’t those what caused the financial crisis in 2008? The answer, in a nutshell, is, well yes! But, despite these products causing all that destruction just a decade ago, they have never really disappeared. Some investors have been using ever since and will likely continue using them in the future.

But, just because your neighbor jumps off a bridge, doesn’t mean you should follow along.

Besides just ‘blindly’ following your neighbor, there are a number of reasons why these MBS ETFs can look appealing. The first and foremost is certainly their high yield. The iShares MBS ETF (MBB) currently offers a yield of 3.73%, while the Vanguard Mortgage-Backed Securities ETF (VMBS) is offering a yield of 3.47% and the First Trust Low Duration Opportunities ETF (LMBS) currently yields 3.5%.

Another is the fact that some of the MBS ETFs boast the idea that the mortgage’s they own are backed by Fannie Mae, Freddie Mac or Ginnie Mae, which are essentially offering insurance to MBS investors on the chance that a large number of mortgagors begin to default.

MBS ETFs offer a great yield and insurance to protect your investment, what is not to like? Continue reading "Do Not Buy A Mortgage-Backed Security ETF"