Stock Analysis & Valuation First Trust Mortgage Income Fund (FMY)

• Previous Close: $12.19
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	199.63	1537
Intrinsic value (DCF)	4.39	-64
Graham-Dodd Method	22.19	82
Graham Formula	636.42	5119

Strategic Investment Analysis

Company Overview

First Trust Mortgage Income Fund (NYSE: FMY) is a closed-end fixed income mutual fund specializing in mortgage-backed securities (MBS). Managed by First Trust Advisors L.P. and co-managed by Brookfield Investment Management Inc., the fund invests in a diversified portfolio of pass-through certificates, collateralized mortgage obligations (CMOs), and residential and commercial mortgage-backed securities (RMBS/CMBS). Established in 2005, FMY aims to provide investors with stable income through exposure to the U.S. mortgage market. With a market cap of approximately $49.9 million, FMY operates in the Financial Services sector, specifically within Asset Management - Income. The fund’s strategy focuses on high-quality fixed-income securities, offering a dividend yield of 0.84 per share, appealing to income-focused investors. FMY’s performance is closely tied to interest rate movements and the broader housing market, making it a niche but relevant player in the fixed-income investment space.

Investment Summary

First Trust Mortgage Income Fund (FMY) presents a specialized investment opportunity for fixed-income investors seeking exposure to mortgage-backed securities. The fund’s low beta (0.254) suggests lower volatility relative to the broader market, which may appeal to risk-averse investors. With a net income of $8.02 million and diluted EPS of $1.91, FMY demonstrates profitability, though its revenue of $8.32 million indicates modest scale. The fund’s dividend yield of $0.84 per share could attract income-seeking investors, but its lack of operating cash flow and capital expenditures data warrants caution. FMY’s performance is highly sensitive to interest rate fluctuations and mortgage market conditions, posing risks in a rising-rate environment. Investors should weigh its niche focus against broader fixed-income alternatives.

Competitive Analysis

First Trust Mortgage Income Fund (FMY) competes in the crowded fixed-income asset management space, differentiating itself through a specialized focus on mortgage-backed securities. Its competitive advantage lies in its targeted exposure to RMBS and CMBS, offering investors a unique income stream tied to the U.S. housing market. The fund’s co-management by Brookfield Investment Management adds credibility, leveraging Brookfield’s expertise in real estate and fixed income. However, FMY’s small market cap (~$49.9M) limits its scale compared to larger fixed-income funds, potentially reducing liquidity and diversification benefits. The fund’s performance is highly correlated with interest rate movements, making it vulnerable to Fed policy shifts. Unlike broader bond funds, FMY’s niche focus may limit appeal during periods of housing market stress. Its lack of leverage (zero total debt) is a strength, reducing downside risk, but also potentially capping returns in favorable markets. FMY’s competitive positioning hinges on its ability to deliver consistent income in a low-yield environment, but it faces stiff competition from more diversified fixed-income ETFs and mutual funds.

Major Competitors

• iShares MBS ETF (MBB): iShares MBS ETF (MBB) is a larger, more liquid alternative to FMY, tracking the Bloomberg U.S. MBS Index. Its $8.9B AUM dwarfs FMY’s $49.9M, offering better liquidity and lower fees (0.04% expense ratio). However, MBB’s passive strategy lacks FMY’s active management potential for alpha generation.
• Vanguard Mortgage-Backed Securities ETF (VMBS): VMBS provides exposure to U.S. agency MBS with a low 0.04% expense ratio. Its $12.4B AUM and Vanguard’s scale make it a formidable competitor. Unlike FMY, VMBS excludes commercial MBS, offering a narrower but more conservative risk profile.
• PIMCO Income Fund (PIMIX): PIMCO Income Fund (PIMIX) is a broader fixed-income fund with $132B AUM, including MBS. Its active management and global diversification contrast with FMY’s U.S.-only focus. PIMIX’s higher expense ratio (0.62%) and credit risk exposure make FMY a simpler, lower-cost alternative for pure MBS exposure.
• Nuveen Mortgage and Income Fund (JLS): Nuveen’s JLS is another closed-end MBS fund with $340M AUM, larger than FMY. It employs leverage (unlike FMY), potentially enhancing returns but increasing risk. JLS’s 6.9% yield is higher than FMY’s, but its leverage strategy may not suit all investors.