JMBS: A Win For Active Management?

A reader brought up the Janus Henderson Mortgaged Backed Securities ETF (JMBS) as a potential dry powder option for investors waiting for better opportunities in a market that looks fairly expensive at the moment.

When looking at the fund our first thought was what an uninformative fund website! Our second thought was that the fund was very expensive at a 0.30% fee – 5x higher than the benchmark iShares MBS ETF (MBB).

However, when we had a look at the fund’s performance we saw that the fund has outperformed MBB, more than covering for its higher fee.

The reason for the fund’s higher fee is its active management. Its outperformance is not overly surprising. Generally speaking, funds find it easier to outperform passive benchmarks in fixed-income rather than equities which has to do with a whole host of reasons.

One thing that worries us a little bit with JMBS is that its outperformance is uneven – it only really started to outperform in late 2019. If it was able to deliver alpha more consistently then it would be a clearer choice for us.

Our second concern is that investors should not consider agencies as “safe” given their long duration exposure. In other words, if agencies can deliver a 4% return per annum over the last 3 years when rates are falling, they can certainly deliver the minus of that when rates are rising. This means that investors need to understand that a “safe” security can have significant interest rate exposure, even if it has no credit risk.

Thanks for reading.

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