Some investors’ hearts start racing when they hear real estate, but that’s unwarranted in 2026, especially if you’re investing in an ETF like the iShares MBS ETF (NASDAQ:MBB).
This is an ETF that actually gained during the mortgage crisis. In 2026, the industry has improved significantly. You won’t get NINJA loans anymore, nor are housing prices overly inflated. Instead, real estate companies have weathered interest rate hikes and are still profitable.
But let’s look at why exactly MBB survived 2008 and what makes it well-suited for your portfolio. The ETF is truly an outlier amongst most, if not all, other real estate ETFs today, and very few people know what it is about.
What does the iShares MBS ETF do?
MBS stands for mortgage-backed securities. The ETF itself is a bond fund that tracks a market of investment-grade U.S. agency mortgage-backed securities, meaning pools of home loans packaged into bonds and issued or guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae.
It lets you own a diversified slice of the agency mortgage market and collect income from the principal and interest paid on those mortgages.
Again, this is not private-label mortgage credit that can get hit terribly during a real estate downturn. You’re looking at securities issued or guaranteed by U.S. housing agencies. Thus, the fact that MBB gained in both 2007 and 2008 was due to investors retaining their confidence in the agency guarantee itself, and then, in 2008, in the U.S. government’s clear willingness to stand behind that market.
MBB is not foolproof
If you look at MBB’s chart, you’ll notice a rather severe decline of 20% from 2021 to 2023. This is mainly due to interest rates rising and pressuring bond prices. The biggest drop was in 2022 when the Fed started hiking, and MBS suffered from negative convexity (prices drop more when rates rise due to rising interest rates. Mortgage rates rose from 2.65% in January 2021 to 7.79% in October 2023. Higher rates directly lowered the present value of the fixed coupon payments and principal in existing MBS.
MBS stock has been trading sideways, though it has made a modest recovery.
I would not let this spook you since 2023 is now behind us, and record interest rate hikes like the ones seen back then are highly unlikely today. Longer-term bond prices are already too low.
Why I’d buy MBB now
The most important thing you should look into is where the market is seeing interest rates. The short-term Fed outlook is that the interest rate will be held at 3.5-3.75%. Worst-case, you may see a slight hike, with the base case at zero cuts or at most 1 cut in 2026. This means MBB is likely to continue treading water while paying dividends or gain slightly. It’s a good zone to accumulate before rate cuts come eventually.
Longer-term, interest rate cuts can come more aggressively in 2027, especially if the broader economy shows signs of slowing down. Investors will flood into bonds when rates are low and the economy is shaky. If you buy and reinvest now, MBB can keep up on a total return basis if it makes a full recovery by 2030, and it can do that while giving you a solid ballast.
You get around a 40% upside potential once MBB makes a full recovery, plus a healthy yield of 4.22% dividend yield that it pays monthly. You pay just $4 per $10,000 invested due to its ultra-low expense ratio of 0.04%.
MBB won’t outpace the market, but it is one of the most solid defensive ETFs you can buy and hold.
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