FlexShares Disciplined Duration MBS Index Fund

FlexShares Disciplined Duration MBS Index Fund (MBSD), from Northern Trust, tracks the ICE BofA Constrained Duration US Mortgage Backed Securities Index. The index holds fixed-rate home-loan bonds from Fannie Mae, Freddie Mac and Ginnie Mae. What sets it apart is that the index keeps effective duration, a measure of interest-rate sensitivity, between about 3.25 and 4.25 years. The trade-off is cost: 0.20% a year, against 0.03% for VMBS and 0.04% for MBB.

• Over the year to Oct 27, 2026, MBSD returned -0.1%, 5th of 8 among similar funds.
• Its 5-year annualized return was +0.5% and its 10-year +1.3%.
• In the 2020 COVID crash it fell 3% and regained its old high 1.2 months after the low.
• Its worst full calendar year was 2022 (-9.5%); its best was 2025 (+7.2%).
• The deepest fall in its price history was 14.4% (Feb 2, 2021 to Oct 20, 2022), recovered by Sep 4, 2025.

As of Jul 31, 2026, the fund held 484 securities; the ten largest made up 16.92% of assets.

The bonds mature in 18.3 years on average (weighted by size), with an average coupon of 4.08%.

• Over the three months to Jul 31, 2026, investors withdrew a net $4.1M (creations minus redemptions, per the N-PORT report).
• Monthly total returns reported for that quarter: +0.13%, +0.08%, -0.78%.

MBSD tracks the ICE BofA Constrained Duration US Mortgage Backed Securities Index, run by ICE Data Indices. Its holdings are mortgage-backed securities (MBS), bonds that pass homeowners' payments to investors, issued by Fannie Mae, Freddie Mac or Ginnie Mae. Only fixed-rate 30-, 20- and 15-year mortgage pools qualify, and each needs at least $1 billion outstanding to join and $250 million to stay. The index held 554 securities as of December 31, 2025.

Pools are weighted by market value, adjusted to hold effective duration generally between 3.25 and 4.25 years. Duration measures how sharply bond prices react to interest-rate changes; the band keeps that sensitivity from drifting as homeowners refinance faster or slower. The index rebalances on the last calendar day of each month, and the fund generally follows.

Northern Trust uses representative sampling, holding a subset of bonds that resembles the index: 484 positions as of July 31, 2026. At least 80% of assets go into index securities and to-be-announced (TBA) trades, contracts where the exact mortgage pools are named about two days before settlement. Money awaiting settlement sits in short-term holdings, possibly Northern Trust money market funds that add their own fees. Shares are created and redeemed for cash, which can force bond sales and capital gains.

• MBSD charges 0.2% a year, versus an average of 0.29% for the similar funds below (4th of 8, cheapest first).
• The fee includes a 0.01% waiver from the adviser, which may end.
• Using the prospectus's standard example, $10,000 invested would cost about $20 in the first year and $267 over 10 years (assuming a 5% annual return).

It pays monthly income from US agency mortgage bonds, and the index limits its interest-rate sensitivity to a set duration band.

MBSD could add monthly income to a portfolio. Its trailing 12-month yield was 4.21% as of October 27, 2026. It also has little link to stocks: its one-year beta, a measure of how closely it moves with the stock market, was 0.1. In the 2020 COVID crash it dipped 3% and recovered in about a month. Rising rates were harder on it. It lost 9.54% in 2022, its worst calendar year. Its deepest drop was 14.4%, from February 2021 to October 2022, and it did not recover until September 2025. A retiree who had to sell shares in late 2022 would have sold near the bottom. The fund launched in 2014, so it has no 2008 record. Under the SEC's standard example, costs on $10,000 come to $20 in year one and $267 over 10 years. Past results don't predict future ones, and a plan should look at the whole portfolio, not one fund.

Matched by bond funds with the closest average maturity and issuer mix (N-PORT).