If you're searching for a relatively stable income investment and a hedge against inflation, considering a Mortgage-Backed Securities ETF might be a wise decision. Among the available options, JMBS—Janus Henderson Mortgage-Backed Securities ETF—stands out as a compelling choice. This blog post will explore what JMBS is, its pros and cons, and potential strategies for investing in JMBS.
JMBS is an actively managed ETF that offers investors exposure to U.S. agency mortgage-backed securities (MBS). JMBS stands for Janus Henderson Mortgage-Backed Securities ETF.
The primary objective of JMBS is to provide a high level of income consistent with capital preservation. Unlike traditional ETFs that track an index, JMBS relies on active management to select and manage the underlying securities, aiming for effective risk-adjusted returns through diversified mortgage-backed securities.
The fund invests primarily in mortgage-backed securities issued by government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
JMBS predominantly holds residential mortgage-backed securities (RMBS) issued by government agencies. These securities are backed by mortgage loans, meaning homeowners' mortgage payments make up the cash flows, providing relatively stable income streams. The ETF is composed mainly of investment-grade securities, reducing the risk of default.
JMBS primarily invests in U.S. agency mortgage-backed securities, which are generally considered safer than corporate bonds or high-yield bonds. The backing by government-sponsored enterprises provides a level of security against default risks. This makes JMBS an attractive option for investors seeking stable and predictable income.
Unlike some ETFs that distribute dividends quarterly or annually, JMBS provides monthly income distributions. This can be particularly beneficial for investors looking for a regular income stream, whether for reinvestment or living expenses.
JMBS benefits from active management, allowing the fund to respond to changes in macroeconomic conditions, interest rates, and housing market dynamics. This flexibility can potentially lead to better risk-adjusted returns compared to passively managed MBS funds.
One of the significant risks associated with mortgage-backed securities is interest rate sensitivity. When interest rates rise, the value of MBS can fall because the newly issued bonds would likely offer higher yields. However, active management may help mitigate some of these risks, but it cannot eliminate them entirely.
Mortgage-backed securities also come with prepayment risk. If interest rates fall, homeowners might refinance their mortgages at lower rates. This leads to early repayments, which can affect the yield and cash flow of the underlying securities in the ETF. Active managers will attempt to account for this in their strategy, but prepayment risk remains inherent.
Actively managed ETFs generally come with higher expense ratios compared to their passive counterparts. JMBS has a higher expense ratio due to the active management aspect, which can eat into overall returns, especially in periods of low yield.
Given the relatively low but stable yields and monthly distributions, JMBS is an excellent choice for long-term income generation. The focus on high-quality, agency-backed securities and the monthly income distribution makes it suitable for retirees or those planning for upcoming retirement.
Investing in JMBS can also serve as a diversification strategy within your fixed income portfolio. Its performance often differs from corporate bonds, high-yield bonds, and treasuries, making it a useful tool in achieving a balanced portfolio.
For investors looking to tactically move in and out of specific sectors based on macro trends, JMBS can serve as an excellent hedge against inflation and economic downturns. As it mainly comprises government-backed securities, it can be a safe harbor during volatile market conditions.
If regularly investing in JMBS and reinvesting the monthly income, the power of compounding can significantly grow your investment over time. This makes JMBS a solid candidate for conservative investment retirement plans aiming for long-term growth with relatively lower risk.
JMBS—Janus Henderson Mortgage-Backed Securities ETF—offers a compelling blend of stability, predictable income, and active management, making it suitable for conservative investors seeking income solutions. While it comes with its own set of risks, including interest rate sensitivity and prepayment risk, its benefits often outweigh these concerns for long-term, income-focused investors.
Understanding your investment goals and risk tolerance is crucial. Given the unique features and pros and cons of JMBS, it could be a valuable component in a diversified, income-seeking investment strategy.