Simplify Asset Management announced the launch of a new exchange-traded focused on mortgage-backed securities.
The Simplify MBS ETF, which trades with the ticker symbol MTBA, invests in mortgage-backed securities and will produce attractive yields against comparable U.S. Treasuries with little to no credit risk, the firm said in a Nov. 7 news release.
MTBA is designed to include mortgage bonds created in 2023. In contrast, other new mortgage-based strategies own older bonds created between 2020 and 2022, Harley Bassman, a managing partner at Simplify and the creator of the strategy, said in a phone call.
"(Mortgage-backed securities) issued this year have larger coupons and shorter durations in comparison to previous vintages, providing a potential cushion against losses if the Federal Reserve keeps rates 'higher for longer,' which is something I have been suggesting will be the case for some time," Bassman said in the release. "Approaches that only mimic the broad MBS universe are bound to disappoint since more than 70% of all 30-year MBS have coupons between 2% and 3.5% with an average price near 79, meaning investors are left with small distributions, large durations and poor positioning in the event of a hard landing."
The fund, which has a management fee of 0.25%, is expected to issue a monthly dividend of 6% with no lockups or K-1 tax forms, according to the release. It will compete with the iShares MBS ETF, which Bassman said in a phone call is composed mostly of 3% mortgage bonds and has a 3.5% yield.
In the same call, Bassman said MTBA was created with intention of expanding access to mortgage-bond trading to individual investors. He added the firm could raise $20 million through the ETF during the first day of trading.
Simplify has 25 ETFs, with MTBA being the third created by Bassman. The firm had $2.77 billion in assets under management as of Nov. 6.
"The current levels of complexity and volatility across the fixed income spectrum are unlike anything investors have seen in decades," Simplify CEO Paul Kim said in the release. "Helping navigate this new normal is at the core of our efforts at Simplify, and we look forward to continuing to educate the marketplace about MTBA and all of the funds in our fast-growing lineup."