Unlocking Income Stability: How VABS Navigates Rising Rates with Consistent Distributions

In today's unpredictable interest rate environment, income-focused investors are scrambling to find reliable sources of cash flow. Enter the Virtus Newfleet ABS/MBS ETF (VABS), a fund that's defied the odds with its unwavering monthly distributions and strategic positioning in the securitized debt market. Let's break down why this ETF deserves a spot in your portfolio—and how it's outmaneuvering the challenges of a rising rate world.

The Power of Short-Duration, Active Management

VABS thrives on a simple yet potent strategy: investing in short-duration (1–3 years), investment-grade asset-backed securities (ABS) and mortgage-backed securities (MBS). These instruments are less sensitive to interest rate hikes than their long-term counterparts, making them a natural hedge against volatility. But what truly sets VABS apart is its active, relative-value approach. The Newfleet team doesn't just passively track an index—they hunt for undervalued niches in the securitized credit markets, such as commercial MBS or auto loan ABS, where yields outpace traditional bonds.

Take a look at the numbers: VABS has delivered a 6.4% annualized return over the past year and a 5.7% return over three years, both outpacing its category. Its 5.21% trailing dividend yield is a standout, especially when the average for short-term bond ETFs hovers around 4.69%. That's not just a high yield—it's a consistent one. Since 2023, VABS has never missed a monthly payout, with distributions like the recent $0.099390 per share in August 2025. For retirees or income-seekers, this reliability is gold.

Rising Rates? VABS Has a Plan

Critics might argue that higher interest rates hurt fixed-income funds, but VABS's playbook is designed to turn this challenge into an opportunity. By focusing on short-duration assets, the fund minimizes the risk of price declines when rates rise. Additionally, its active management allows the team to rotate into sectors with the highest current yields. For example, if residential MBS are underperforming, they might pivot to commercial MBS or auto ABS, where spreads are tighter and returns are juicier.

The fund's 0.39% expense ratio is another feather in its cap. In a world where every basis point matters, this cost efficiency amplifies the value of its distributions. And let's not forget the diversification—VABS's portfolio spans residential and commercial MBS, auto loans, and equipment leases. This broad exposure ensures that even if one sector stumbles, others can step up to maintain the income stream.

Navigating the Risks

No strategy is foolproof. A sharp rise in rates could pressure VABS's existing holdings, which are locked into lower yields. However, the fund's active management mitigates this risk by enabling quick reinvestment into higher-yielding opportunities. For instance, if the Fed's rate hikes push new ABS and MBS to 6% yields, VABS can replace its older 4% assets faster than a passive fund.

Another concern is prepayment risk in MBS, where homeowners refinance at lower rates, shortening the life of the security. But VABS's focus on short-duration MBS limits this exposure. Plus, the fund's management team—led by David Albrycht, CFA, and a crew with decades of securitized debt expertise—has a proven track record of navigating these pitfalls.

Why VABS Stands Out in 2025

As of August 2025, VABS is trading at a minimal discount to NAV (just -0.01% as of July 28), suggesting the market isn't overvaluing its risks. Its $24.43 NAV and $52.5 million in net assets indicate a stable, well-capitalized fund. And with the Fed expected to cut rates in late 2025, the current environment could be a buying opportunity for income-seekers.

Final Verdict: A Must-Have for Income Portfolios

For investors craving predictable income without sacrificing growth potential, VABS is a standout. Its blend of short-duration assets, active management, and cost efficiency creates a rare trifecta in today's market. While no fund is immune to macroeconomic shifts, VABS's strategies are tailored to thrive in a rising rate environment.

Action Plan:
1. Allocate 5–10% of your income portfolio to VABS to diversify away from traditional bonds.
2. Monitor the fund's distribution trends and expense ratio to ensure they remain competitive.
3. Rebalance annually to maintain your desired risk-reward profile.

In a world where income is king, VABS isn't just playing the game—it's rewriting the rules.