Taxable Income : Mortgage-Backed Securities Funds

About Mortgage-Backed Securities Funds

Mortgage-backed securities are fixed-income investments, created by packaging together pools of mortgages with similar characteristics. The resulting securities offer cash flows dependent on the principal and interest payment flows from the underlying mortgages. MBS are characterized as residential (RMBS) or commercial (CMBS).

MBS offered by government agencies are guaranteed by the government or those agencies. Agencies offer residential MBS only.

Non-agency securities are offered by investment bankers and asset managers. These do not offer agency guarantees, and thus must offer some other form of protection to shield investors from underlying mortgage delinquencies and defaults. This has typically been done through a senior / subordinated structure of tiers or tranches within the pools. These tiers are ranked for payment and loss priorities, and most or all tiers are individually rated by ratings agencies.

About the Nuveen Mortgage Opportunity Term Funds

The Nuveen Mortgage Opportunity Term Fund (JLS) and the Nuveen Mortgage Opportunity Term Fund 2 (JMT) seeks to capitalize on the potential for recovery in the U.S. residential and commercial real estate markets through investments in mortgage-backed securities. The funds offers retail investors access to an opportunistic institutional market strategy including non-agency RMBS, CMBS, and other mortgage-related investments. The funds seeks to generate attractive total return through direct investments in MBS and other asset-backed securities. It is anticipated that Mortgage Opportunity Term (JLS) and Mortgage Opportunity Term 2 (JMT) will terminate on November 30, 2019 and February 28, 2020, respectively. Upon termination, the Funds will distribute all of their net assets to shareholders of record as of the date of termination.

Investor Profile

Are these CEFs right for you?

The features and investment objectives of these funds might be especially appealing to investors seeking:
  • Attractive total return, including both income and potential capital appreciation, through investments in mortgage-backed securities;
  • Access to an opportunistic institutional strategy and to the Public-Private Investment Partnership program; and
  • The opportunity to participate in any recovery in the U.S. real estate market.

What are potential risks?

  • Significant credit risks inherent in the underlying mortgages;
  • Liquidity risks, as many MBS at the time of fund launch are offered due to forced sales;
  • Interest rate risks, as residential MBS cash flows are strongly dependent on interest rate changes;
  • General economic risk and geographic concentration risk, as MBS cash flows also depend on economic conditions which vary across the country; and
  • Structure and execution risk which includes how cash flows and losses are distributed to investors and whether the underlying loans are recourse.

Nuveen's Mortgage-Backed Securities CEFs

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