This is an actively managed bond ETF that invests a significant portion of its net assets in agency and non-agency mortgage-backed securities. It does not track a specific index. Instead, the management team selects holdings at its own discretion.

It suits bond investors who want stable interest income while reducing sensitivity to interest rate changes.

It is an ETF run by First Trust using an active management approach.

The fund invests a significant portion of its net assets in agency and non-agency mortgage-related bonds tied to residential and commercial mortgages. Through active management, it adjusts allocations to market conditions and maintains a low duration to manage interest rate risk.

• Active management at the managers' discretion, not passive index tracking
• Focus on mortgage-related bonds while maintaining a low duration

Assets under management (AUM) stand at $6.5B, and the total expense ratio is 0.66% per year.

Reflecting its active management approach, it differs from comparable MBS ETFs in fee level and in how it selects holdings.

Mortgage bond spreads have shifted with changes in the interest rate environment, affecting price movements. Because of its low duration, the fund tends to show relatively muted swings when rates rise or fall sharply.

Fund flows have emerged as investor demand for stable interest income meets uncertainty over rate policy, and interest in low-duration products has continued during periods of volatility across the bond market.

Its strength is managing interest rate risk through a low duration. Its weaknesses are the fee burden that comes with active management and the prepayment risk inherent in mortgage bonds.

MBB, VMBS, and SPMB, shown in the table, are passive MBS ETFs that track an index and are known for low fees, while JMBS and JMTG are peer products that take an active approach similar to LMBS. If you want passive index tracking, low-fee alternatives such as MBB and VMBS are available. For a broader option that extends beyond agency MBS to asset-backed securities, you can also review the MBS ETF category as a whole.

Here are the points to check before investing in LMBS. Given the nature of an actively managed bond ETF, interest rates, credit, and fees should be reviewed together, and the prepayment risk unique to mortgage-related bonds should be confirmed in advance.

Prepayment risk and the credit risk of non-agency mortgage-related securities are the key variables. If spreads widen as rate policy shifts, price swings can become larger.

This is an active MBS ETF suited to investors who want regular interest income while reducing interest rate risk. If you prefer a low-fee passive alternative, products such as MBB and VMBS are a better fit.