What is OWNS? (Pros, Cons, and Strategies)
In today's evolving real estate market, many investors are turning to diversified investment vehicles to manage risk and provide steady returns. One such instrument gaining popularity is OWNS, also known as the CCM Affordable Housing MBS ETF. If you're looking to diversify your portfolio with a socially responsible investment, understanding OWNS is crucial. Notably, it brings to the table a strategy targeting affordable housing in the U.S. through mortgage-backed securities (MBS). Let's explore what OWNS is, and delve into its advantages, disadvantages, and investment strategies.
What is OWNS?
OWNS stands for CCM Affordable Housing MBS ETF. It is an exchange-traded fund designed to provide exposure to mortgage-backed securities that focus on affordable housing initiatives.
OWNS aims to generate income and provide capital preservation by investing in a diversified portfolio of mortgage-backed securities (MBS). It specifically targets securities that support affordable housing initiatives. This focus aligns with social responsibility and also offers a unique investment opportunity in the fixed-income market.
Key Features of OWNS
- Investments in MBS dedicated to affordable housing
- Focus on U.S. mortgage-backed securities
- Managed by Community Capital Management (CCM), a firm known for its impact-focused investment strategies
The fund aims to bring positive social impact by supporting affordable housing while seeking to offer a relatively stable income for investors.
OWNS Composition
OWNS largely consists of mortgage-backed securities issued by governmental agencies and government-sponsored enterprises like Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). These securities are typically backed by pools of mortgages that finance affordable housing, making them generally lower-risk than private-label MBS.
Pros of OWNS
Social Impact
One of the standout features of OWNS is its focus on social responsibility. Investments channeled into affordable housing can offer community benefits, making your investment beneficial not just for your portfolio but also for society at large. This dual objective makes OWNS particularly attractive to socially conscious investors.
Low Correlation with Equities
Mortgage-backed securities often have a low correlation with the equities market, offering diversification benefits. This lower correlation can reduce the overall volatility of your investment portfolio, making OWNS a good hedging instrument during stock market downturns.
Income Generation
OWNS aims to provide regular income through the interest payments received from the underlying pool of mortgage-backed securities. This consistent stream of income can be attractive for retirees and income-focused investors.
Cons of OWNS
Interest Rate Sensitivity
Interest rates have a significant impact on the value of mortgage-backed securities. When interest rates rise, the value of existing MBS tends to fall, which can negatively affect your investment in OWNS. Therefore, OWNS may not be ideal in a rising interest rate environment.
Limited Growth Potential
Mortgage-backed securities, by their nature, offer limited capital appreciation. OWNS is designed more for income generation and capital preservation rather than for substantial growth. Investors seeking high capital gains might find OWNS less appealing.
Complexity
The underlying assets of OWNS are mortgage-backed securities, which can be complex and difficult to understand for average investors. The performance of these securities is influenced by a variety of factors, including prepayment rates and defaults, making it a less straightforward investment.
OWNS Investment Strategies
OWNS offers a unique blend of income generation and social impact, making it an interesting option for diversified portfolios. Here are some strategies to maximize your investments in OWNS.
Long-term Income Focus
OWNS can be an excellent choice for long-term income-focused investors due to its steady income stream. By holding OWNS over an extended period, investors can benefit from the relatively stable income generated by the interest payments on the underlying mortgage-backed securities.
Diversification Strategy
Given its lower correlation with the stock market, OWNS can be used to diversify an equity-heavy portfolio. By adding OWNS, investors can potentially reduce their portfolio's overall volatility and risk.
Socially Responsible Investing (SRI)
If you're committed to socially responsible investing, OWNS fits well into this strategy. By investing in OWNS, you are not only aiming for financial returns but also contributing to social goals such as increasing the availability of affordable housing.
Hedging Against Equity Market Volatility
During periods of equity market instability, OWNS can serve as a safer harbor. Mortgage-backed securities in the OWNS portfolio are generally more stable compared to equities, making it a good choice for hedging against market volatility.
Conclusion
OWNS offers a unique investment opportunity by combining income stability, social responsibility, and diversification benefits. While it may not offer the high growth potential sought by short-term investors or those focused on capital gains, its advantages make it a strong candidate for long-term, income-focused, and socially responsible investment strategies. Understanding its pros and cons can help you make an informed decision and successfully incorporate OWNS into your investment portfolio.