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I may add a mortgage mutual fund to help diversify the income portion of my portfolio, but remain unsure how these funds might behave in the current market and how they differ from bonds in their response.

Thinking ahead to government interest rate hikes, would these funds theoretically lose value when interest rates jump, or is there more buffer given the variety of mortgages held in the fund?

Would anyone be able to comment on their outlook/opinion toward these funds that track the DEX Mortgage Index?

Thanks for any input you can share! :)
 

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Mortgage funds behave pretty much the same as short-term bond funds, holding mortgages or bonds up to 5 years in term. In fact most "mortgage" funds also hold short-term bonds as well, and some funds (like RBC's) have changed their names in recent years to "Short Term Income" so the prospectus no longer binds them to keeping a majority asset allocation in mortgages.

They will drop in unit value when interest rates go up, but will recover more quickly than long-term bonds because their portfolio turns over more quickly.
 
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