(Note: Third in a series on the biggest actively managed ETFs)
The First Trust Low Duration Opportunities ETF (NASDAQ:LMBS) is an actively managed, fixed-income fund that invests in an array of mortgage-backed securities and has a target duration of less than three years.
LMBS, an open-ended fund, occasionally will take positions in U.S. Treasury future bonds or options. It is among few exchange-traded funds (ETF) of its kind to focus on short-duration mortgage-backed securities.
The ETF invests in federal-agency-backed mortgage securities, as well as those from non-agencies and commercial issuers. By doing so, the fund raises its relative value and yield.
LMBS has a 0.67% expense ratio and a dividend yield of 2.24%. This MBS ETF has $5.26 billion in net assets and a net asset value of $51.67, with $5.39 billion in assets under management. Year to date (YTD), this fund’s total return is 0.64%.
Since December 2019, this fund has managed to climb and currently is above its 50-day moving average. Much like the rest of the market, this fund saw a drop in mid-March, with its lowest close YTD of $49.40 on March 23. However, as the chart below shows, it has started to make a recovery with a strong rise in early April, following a decent jump on March 27, when the closing price reached $51.25.
LMBS seeks to generate current income with a secondary objective of capital appreciation. In normal conditions, the fund seeks to achieve its investment objectives by investing at least 60% of its net assets in mortgage-related investments.
This non-diversified fund’s portfolio composition is 80.91% bonds, 19.08% cash equivalents and 0.01% other. Its top 10 holdings make up 48.56% of its total assets. The top five holdings as of June 2, according to Morningstar, are Federal National Mortgage Association 2.5%, 9.28%; Federal National Mortgage Association 2%, 4.97%; Fnma Pass-Thru 2.5%, 3.04%; Fnma Pass-Thru 4.5%, 2.78%; and Fnma Pass-Thru 2.5%, 2.07%.
This fund’s portfolio carries more of a material risk because it includes non-agency and commercial mortgage-backed securities. However, its short target duration has an increased appeal for investors worried about rising interest rates and still wanting a decent yield. This is a readily tradable ETF and has a solid daily volume.
In sum, while there is more risk in First Trust Low Duration Opportunities ETF (NASDAQ:LMBS), than in purely agency-backed MBS funds, it has made YTD gains and has not faltered much since its 2014 inception. With a low duration of less than three years, it is more protected from rising interest rates than some other ETFs. According to Yahoo Finance, LMBS has a bond rating of 98.15% in the AAA sector, which is a positive given that the majority of its portfolio consists of bonds.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
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