Vanguard Mortgage-Backed Securities ETF (VMBS) Covered Calls

Vanguard Mortgage-Backed Securities ETF (VMBS) is a passively managed exchange-traded fund that tracks the performance of the Bloomberg U.S. MBS Float Adjusted Index. The fund provides diversified exposure to investment-grade, intermediate-term mortgage-backed pass-through securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac. By employing an index-sampling strategy, VMBS offers investors a high-credit-quality source of monthly income with moderate interest rate risk.

You can sell covered calls on Vanguard Mortgage-Backed Securities ETF to lower risk and earn monthly income. Born To Sell's covered call screener gives you customized search capabilities across all possible covered calls but here are a couple of examples for VMBS (prices last updated Thu 4:16 PM ET):

Vanguard Mortgage-Backed Securities ETF (VMBS) Stock Quote
Last Change Bid Ask Volume P/E Market Cap
47.56 +0.29 47.01 48.57 1.3M - 18
Covered Calls For Vanguard Mortgage-Backed Securities ETF (VMBS)
Expiration Strike Call Bid Net Debit Return
If Flat		 Annualized
Return If Flat
Feb 20 48 0.00 48.57 -1.2% -48.7%
Mar 20 48 0.00 48.57 -1.2% -11.8%
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Vanguard Mortgage-Backed Securities ETF (VMBS) is an index-based exchange-traded fund designed to track a market-weighted index of U.S. agency mortgage-backed securities (MBS). The fund provides a low-cost "pure-play" exposure to the agency MBS market, which consists of pools of home mortgages that are guaranteed against default by U.S. government-sponsored enterprises or agencies. This high credit quality makes VMBS a staple for conservative fixed-income portfolios seeking a stable yield that typically exceeds that of comparable U.S. Treasuries.

Core Business and Products

The fund’s investment strategy focuses on three primary types of securities:

  1. Agency Pass-Throughs: Fixed-rate mortgage-backed securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). These constitute nearly the entire portfolio.
  2. Intermediate-Term Duration: The fund maintains a dollar-weighted average maturity typically ranging from 3 to 10 years, placing it in the "sweet spot" of the yield curve for many income investors.
  3. Monthly Distributions: Unlike many individual bonds that pay semi-annually, VMBS provides monthly dividend distributions, making it ideal for investors who use their portfolios for regular cash flow.

Competitive Landscape

VMBS operates in a highly liquid segment of the bond market with several major competitors. Its most direct rival is the iShares MBS ETF (MBB), which tracks a similar index. Other competitors include the SPDR Portfolio Mortgage Backed Bond ETF (SPMB) and broader aggregate bond funds like Vanguard Total Bond Market (BND) or iShares Core U.S. Aggregate Bond (AGG). VMBS distinguishes itself through its industry-leading low expense ratio (0.03%) and its passive sampling approach, which aims to minimize tracking error while reducing transaction costs for shareholders.

Strategic Outlook and Innovation

The strategic outlook for 2026 is bolstered by stabilizing inflation and a more predictable Federal Reserve policy, which has led to a sharp decline in interest rate volatility. A major area of "structural innovation" is the fund's resilience against prepayment risk; as the yield curve steepens, the risk of a massive refinancing wave remains low, supporting stable yields for investors. The fund is also benefiting from increased institutional demand as domestic banks and government-sponsored enterprises resume active purchasing of mortgage-backed assets. Strategic focus remains on maintaining high liquidity and tax efficiency through the ETF creation/redemption mechanism. By providing a high-quality, transparent, and ultra-low-cost vehicle for MBS exposure, Vanguard aims to help investors navigate a volatile fixed-income landscape while preserving capital and generating sustainable income.