In a bid to drive mortgage rates down and foster more home buying among younger people, President Trump recently proposed a plan to purchase $200 billion worth of mortgage-backed securities (MBS).

There ETFs for that, which makes sense given the sheer scope of the MBS market. However, passively-managed funds dominate most of the legacy funds in the MBS ETF category. That’s fine for investors prioritizing low fees and large rosters. However, those products may not suit a moment of renewed government-backed MBS buying.

The WisdomTree Mortgage Plus Bond Fund (MTGP) may be the ideal consideration for advisors and investors seeking MBS exposure. Actively managed, MTGP turns seven years old in November. It may be ready for its close-up: MBS represent a corner of the fixed income market where active management is advantageous.

MTGP Ready to Shine

In any environment, MTGP’s status as an active ETF could be alluring to advisors and fixed income investors, but those advantages are arguably amplified at a time when the government could again be a major MBS market participant.

“The mortgage-backed space is rife with dispersion. Not all mortgage-backed bonds are created equally. Active managers can exploit dislocations between agency and non-agency MBS, while managing duration and convexity risks more precisely,” said Kevin Flanagan, head of investment strategy at WisdomTree.

MBS are core bond considerations, making MTGP even more relevant. Active managers can unearth opportunities in this segment that index-based competitors often miss.

“ETFs that incorporate active securitized management offer transparency, liquidity, and cost efficiency, with the added benefit of professional credit selection. For investors seeking enhanced yield without dramatically increasing risk, this could be an ideal way to express views in the MBS sector,” adds Flanagan.

Flexibility of Active Management

Looked at another way, if Trump’s plan moves forward and the government acts as a major MBS buyer, some old ETF’s may only capture a portion of the benefits. On the other hand, MTGP can leverage active management for better flexibility and potentially superior outcomes.

“In today’s complex fixed income environment, ‘owning the index’ may not be enough. Active Plus strategies, especially those with deep expertise in securitized credit, can offer a smarter, more responsive way to capture mortgage-backed opportunities” concludes Flanagan. “Investors looking to build resilience and income in their portfolios may find that now is the right time to reconsider how they access the MBS market.”

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