Regan Capital Launches the Regan Floating Rate MBS ETF (NYSE: MBSF)
- MBSF offers investors higher yields than traditional Treasury bonds with lower risk due to government backing
- The fund seeks to generate alpha through actively managed Agency RMBS to enhance yield spreads
- MBSF can act as a cash alternative to money market funds with high yield and liquidity
- The ETF's portfolio consists of floating rate Agency RMBS, making it interest rate neutral and adaptable to various interest rate environments
- MBSF aims to democratize access to RMBS for all investors with low fees and liquidity provided by the ETF wrapper
- Regan Capital previously launched RCIRX, a 5-star Morningstar-rated mutual fund focusing on mortgage bonds
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Insights
The launch of the Regan Floating Rate MBS ETF (MBSF) by Regan Capital is a strategic move to capitalize on the current interest rate environment. The ETF's focus on floating rate Agency RMBS is particularly noteworthy. Given that these securities adjust their interest rates in relation to short-term Treasury rates, they offer a degree of protection against the volatility of interest rates. This characteristic can be especially appealing to investors in a fluctuating rate environment, as it may provide a hedge against rising rates while still offering the potential for higher yields compared to traditional fixed-income securities like Treasury bonds.
Additionally, the ETF's structure allows for enhanced liquidity and lower fees, which could make it an attractive option for a broader range of investors, democratizing access to a market typically reserved for those with substantial capital and connections. The initial seed capital of $25 million indicates investor confidence in the fund's strategy and management, while the 0.49% annual operating expense fee is competitive, potentially influencing the ETF's attractiveness to cost-conscious investors.
From a market perspective, the MBSF ETF's positioning as a cash alternative to money market funds is intriguing. It suggests a strategic targeting of investors who are dissatisfied with the low yields of money market funds, particularly in scenarios where the Federal Reserve cuts interest rates. This positioning could capture a niche market segment seeking higher yield without significantly increasing risk exposure.
The fund's independence from replicating any specific index also indicates a more active management approach, which could attract investors looking for potential alpha generation in the fixed income market. However, the success of MBSF will hinge on the fund manager's ability to effectively navigate the complexities of the Agency RMBS market and deliver on the promised yield enhancement and interest rate neutrality.
Agency RMBS are considered quasi-government securities due to the backing of government-sponsored entities, which typically reduces credit risk. However, the responsiveness of floating rate securities to short-term interest rate movements introduces a different risk profile compared to fixed-rate securities. The economic implications of investing in such instruments include potential fluctuations in yield, influenced by the Federal Reserve's monetary policy and economic indicators that affect short-term interest rates.
It is also important to consider the broader economic context, such as inflationary pressures and the overall health of the housing market, as these can impact the performance of mortgage-backed securities. The fund's strategy to enhance yield spread over Treasury bonds may be effective in a stable or growing economy but could face challenges during economic downturns or periods of high volatility in the housing market.
Veteran asset-backed securities trader Skyler Weinand launches MBSF, an actively managed exchange-traded fund that invests in floating rate Residential Mortgage-Backed Securities
Agency RMBS typically offer higher yields than Treasury bonds without significant additional risk, since Agency RMBS are issued by government sponsored entities, such as Fannie Mae and Freddie Mac.
“Agency Residential Mortgage-Backed Securities give investors the best of both worlds: the potential to earn a higher yield than a traditional Treasury bond, while also seeking to benefit from the
MBSF seeks to enhance the spread that Agency RMBS yields typically have over yields on Treasury bonds through the alpha generated from its portfolio of actively managed Agency RMBS.
MBSF can also act as a cash alternative to money market funds, due to its high yield and liquidity.
“Agency Residential Mortgage-Backed Securities may be an attractive alternative for investors who park cash in money market funds, which won’t yield as much if the Federal Reserve cuts interest rates,” Weinand added. “Right now, there aren’t many alternatives to money markets for investors looking for a place to keep cash.”
MBSF’s portfolio of Agency RMBS comes with floating rates, which means that the bond’s interest rate moves based on short-term Treasury rates. As a result, MBSF can perform in a variety of interest rate environments, and we believe it is interest rate neutral. If interest rates rise, the fund offers higher yields. If interest rates decline, mortgage holders may be more likely to refinance, or prepay their mortgage balances in order to lock-in a lower interest rate, which can increase the value of MBSF’s holdings. Interest rates and bond prices move in opposite directions.
The Agency RMBS in MBSF are purchased on over-the-counter (OTC) markets, which are typically only available to investors with deep relationships with primary dealers and brokers.
“We aim to democratize access to Residential Mortgage-Backed Securities for all investors with the ETF wrapper, which also provides liquidity and low fees for investors,” Weinand added, who was previously head of residential and consumer asset-back securities trading at Cantor Fitzgerald.
MBSF is launching with roughly
In 2020, Regan Capital launched the Regan Total Return Income Fund (RCIRX), a mutual fund which invests across the fixed income market with a focus on mortgage bonds. It was the recipient of the 5-Star Morningstar Rating™, based on risk-adjusted returns for the three-year and overall periods, out of 286 funds in the Nontraditional Bond Category as of 12/31/2023.
For more information, please visit: https://www.regancapital.com/etf-mbsf/
About Regan Capital
Founded in 2011, Regan Capital, LLC is an SEC Registered Investment Adviser. The firm’s target investor base includes endowments and foundations, banks and insurance companies, corporate and public pension plans, family offices, high net worth individuals and Registered Investment Advisors. The firm is based in
Regan Capital was founded by Skyler Weinand, who serves as chief investment officer and managing member. Previously, Weinand was head of residential and consumer asset-backed (ABS) securities trading at Cantor Fitzgerald from July 2007 to March 2011 where he generated in excess of
DISCLOSURES:
This information is for use with concurrent or prior delivery of the Regan Floating Rate MBS ETF prospectus. Investors should consider the investment objective, risks, and charges and expenses of the Fund(s) before investing. The prospectus contains this and other information about the Fund(s) and should be read carefully before investing. The prospectus may be obtained by calling the Fund toll-free at (844)-988-6273 or at www.regancapital.com.
The Regan Total Return Income Fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Please read it carefully before investing. A free hard copy of the prospectus can be requested by calling +1 888-988-6273 or at www.regancapital.com.
Regan Floating Rate MBS ETF is distributed by Northern Lights Distributors, LLC member FINRA/SIPC. Regan Capital, LLC is not affiliated with Northern Lights Distributors, LLC
The Regan Total Return Income Fund is distributed by Quasar Distributors, LLC, which is not affiliated with Regan Capital, LLC, Northern Lights Distributors, LLC, or any of their affiliates.
The Regan Floating Rate MBS ETF has a limited history of operations with an inception date of February 28, 2024.
IMPORTANT RISKS: Exchange Traded Fund investing involves risk. Principal loss is possible. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss of principal and interest than higher-rated securities do. The Fund is newly formed and has no operating history. An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by any government agency. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.
The Fund may effect creations and redemptions in cash and therefore may recognize gains that may not have been recognized if it were to distribute portfolio securities in-kind. Investments in shares may be less tax-efficient that an investment in an ETF that distributes portfolio securities entirely in-kind.
Mutual fund investing involves risk. Principal loss is possible. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and nonrated securities present a greater risk of loss of principal and interest than higher-rated securities do. For more information on these risks and other risks of the fund, please see the Prospectus.
The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top
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Source: Regan Capital
FAQ
What is MBSF and what does it invest in?
What are the benefits of investing in Agency RMBS through MBSF?
How does MBSF aim to enhance yield spreads?
What role does MBSF play as a cash alternative?
What is the interest rate neutrality of MBSF?
How does MBSF aim to democratize access to RMBS?
What is the expense fee for MBSF?
What was the previous mutual fund launched by Regan Capital?
