This is a passive bond ETF that tracks an index of investment-grade mortgage-backed securities built from pools of commercial real estate loans, such as offices, retail properties and logistics facilities. It gives investors exposure to the interest income from commercial real estate loans.

It suits investors who want to diversify across commercial real estate bonds in pursuit of stable interest income while understanding the risks specific to structured products.

It is a passively managed (index-tracking) ETF run by iShares.

The fund tracks an index of investment-grade mortgage-backed securities built from pools of commercial real estate loans, such as offices, retail properties and logistics facilities. It seeks interest income by spreading its holdings across structured bonds backed by many commercial real estate loans. It does not own real estate directly, and is instead exposed to the interest flows of the loan-backed bonds.

• Exposure to bonds backed by commercial real estate loans
• Portfolio centered on investment-grade structured bonds

Assets under management (AUM) stand at $443.5M, and the total expense ratio is 0.25% per year.

Compared with other investment-grade structured bond ETFs such as JAAA and PAAA, the main points of comparison are the underlying assets and the structure.

Commercial mortgage bonds are driven by the direction of interest rates, the commercial real estate cycle and the credit environment. Bond prices come under pressure when rates rise, and credit concerns can come to the fore when the real estate market slows. Because the fund focuses on investment-grade paper, its credit risk is relatively low compared with subordinated structured bonds.

Fund flows into commercial mortgage bonds diverge depending on the rate outlook, the commercial real estate cycle and the credit environment, and money sometimes moves into related products when interest in the real estate market rises. It is also worth noting that performance varies with the real estate cycle and credit conditions.

Its strengths are diversification across commercial real estate bonds and investment-grade income, while sensitivity to the real estate cycle, structural complexity and interest rate risk are considerations.

For exposure to mortgage bonds guaranteed by government agencies, direct substitutes include MBB, and for broad investment-grade bond exposure, products such as AGG are also worth comparing. Investors who want to focus on investment-grade corporate bonds can also consider products such as USIG. The three funds shown in the table, JAAA, PAAA and FSEC, invest in top-rated structured bonds and investment-grade asset-backed bonds, so their underlying assets differ. What sets this ETF apart is its narrower exposure to bonds backed by commercial real estate loans.

Here are the points to check before investing in CMBS. Exposure to commercial real estate bonds is attractive, but sensitivity to the real estate cycle, structural complexity and interest rate risk should be confirmed in advance. It is also a good idea to compare it with government agency mortgage and broad bond products.

A slowdown in the commercial real estate market, rising interest rates and a worsening credit environment are the main variables for short-term performance, and the complex structure can make the fund hard to understand and value. Even with an investment-grade focus, price swings can widen when the real estate market deteriorates.

It is a suitable candidate for investors who want to diversify across commercial real estate bonds in pursuit of stable interest income. Those who want government agency mortgages or broad bond exposure should look at products such as MBB and AGG, while those who want exposure to commercial real estate bonds should compare this fund alongside them before choosing.