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ETF Specialist

A Morningstar Medalist Offering Exposure to Agency MBS

A broadly diversified portfolio and sizable cost advantage make this a compelling option.


Vanguard Mortgage-Backed Securities ETF (VMBS) is a great choice for exposure to the agency mortgage-backed securities market. It is tough to beat broadly diversified exposure to this conservative area of the bond market for a rock-bottom fee over the long run, and that is why the strategy earns a Morningstar Analyst Rating of Silver.

The strategy tracks the Bloomberg Barclays U.S. MBS Float Adjusted Index, which includes U.S. agency MBS denominated in U.S. dollars with at least $1 billion outstanding and that have a weighted average maturity of at least one year. The index is market-value-weighted, which mitigates transaction costs and free-rides off the market’s collective wisdom. In this market, it is difficult for active managers to outperform without taking additional risk, given the low credit risk of the issues. The fund’s cost advantage should translate into above-average peer-relative performance over the long term.

Neal Kosciulek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.