Despite a quiet 2006, the bond-based ETF category has picked up this year with the addition of another new fund to the fixed-income universe.
Barclays Global Investors (BGI) recently launched the iShares Lehman MBS Fixed-Rate Bond Fund (AMEX: MBB), expanding its lineup of fixed-income ETFs to 15.
The fund’s annual expense ratio is 0.25 percent. Like all ETFs, the portfolio aims to reflect the performance of an underlying index, which in this case is drawn from the securities issued by GNMA (Ginnie Mae), FHLMC (Freddie Mac) and FNMA (Fannie Mae). As of February 1, the index included 387 separate mortgage-backed 30-, 20-, 15-year and balloon bond issues. Constituents have a remaining maturity of at least one year and more than $250 million or more of outstanding face value. In addition, all securities included in the index must be non-convertible and must be denominated in U.S. dollars. The fund uses a representative sampling strategy in seeking to track the underlying index.
One of the advantages that bond ETFs offer over bond mutual funds is intra-day pricing, transparency and rock-bottom expense ratios.