BOSTON –- Most specialized exchange-traded funds (ETFs) are launched on a market segment when it's hot, but that's certainly not the case with a new ETF listed today on the American Stock Exchange that provides exposure to mortgage-backed securities.
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The timing of the listing of iShares Lehman MBS Fixed-Rate Bond Fund reportedly caught the attention of many traders and analysts because of the concerns growing around the mortgage market, especially the subprime segment.
Analysts said the ETF will likely serve a need in long-term investors' portfolios.
One analyst was quoted as saying, "These are not subprime mortgages, and I wouldn't classify this ETF as a risky security."
The new ETF reportedly has an expense ratio of 0.25 percent, tracks an index of investment grade fixed-rate mortgage-backed securities of government-sponsored mortgage issuers Ginnie Mae, Freddie Mac and Fannie Mae. The mortgage-backed securities are pass-through which means all principal and interest payments from the mortgage pool are passed on directly to investors.
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In addition, the securities much be non-convertible.
According to Barclays Global Investors, the ETF's sponsor, the index includes 30-, 20- and 15-year and "balloon" securities that have a remaining maturity of at least one year and have more than $250 million of outstanding face value.
The Securities Industry and Financial Markets Association reported the issuance of agency mortgage-backed securities from Ginnie Mae, Freddie Mac and Fannie Mae combined has grown from $23.1 billion in 1980 to a record of about $2.13 trillion in 2003.
MarketWatch said observers opined that the new ETF could be attractive to investors looking for extra yield and who want to diversify their bond portfolios.
However, said one analyst, the new ETF could suffer from "headline risk" because even though the concerns about the subprime market should impact the holdings, those worries will impact how the ETF is perceived.
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