Investors continue hearing about the growth of fixed income exchange-traded funds (ETFs). Year to date, bond ETFs have set a record with $84 billion of inflows, while some fixed income ETFs are becoming increasingly accessible and appealing to a broader swath of investors. That trend continues with the iShares MBS ETF (MBB). MBB has been on the market for over a decade and has $10.1 billion in assets under management, making it one of the kings of the mortgage-backed securities (MBS) ETF space.

Proving that an old ETF can learn new tricks, BlackRock, Inc. (BLK), the parent company of iShares, "is transforming MBB to be a financial instrument and risk management tool of choice for investors seeking exposure to the mortgage market. BlackRock is also launching four new fixed income smart beta and environmental, social and corporate governance (ESG) ETFs to meet increasing client demand," said the asset manager. Mortgage-backed securities represent a significant percentage of the fixed income market: $5.5 trillion to be precise, using BlackRock data. These assets are secured by mortgages on real estate that borrowers have agreed to repay. (See also: How Mortgage-Backed Securities ETFs Work.)

Not to be lost in the news about MBB's transformation is a significant fee reduction. BlackRock is paring MBB's annual fee to just 0.09%, or $9 on a $10,000 investment, from 0.27%. Much as the issuer has done with emerging markets, investment-grade and high-yield corporate bond ETFs, BlackRock is looking to make MBB the go-to choice for investors, including big institutional investors, looking to put on MBS exposure. The idea behind MBB's transformation is to provide a low-cost, highly liquid alternative to individual MBS issues. (See also: BlackRock's iShares ETFs.)

"Seeking to make the U.S. mortgage market more efficient, particularly for institutional mortgage buyers, BlackRock is lowering the price on MBB from 27 to nine basis points to compete directly in one of the largest segments of global fixed income. The firm is positioning MBB to become a leading financial instrument and risk management tool for institutions to access physical mortgage pools," according to BlackRock.

MBB currently has an effective duration of 4.37 years and a 30-day SEC yield of just over 2%. Yields on MBS ETFs are typically lower than on other bond funds of comparable duration because of the high credit quality. For example, essentially all of MBB's nearly 450 holdings carry the prestigious AAA credit rating. MBB tracks the Bloomberg Barclays US Mortgage Backed Securities Index and has a weighted average maturity of almost 6.5 years. (See also: Top 3 Mortgage-Backed Securities ETFs.)

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