“The real estate sector is currently benefiting from a number of tailwinds that include the general search for higher yield (REITs pay dividends) and lower volatility, better data emerging from key markets and the U.S. Federal Reserve’s continued focus on the mortgage and housing markets,” Kenneth Rapoza wrote for Forbes.
The iShares Mortgage REIT Capped ETF (NYSE: REM) has started 2013 with an upswing. The ETF has a 30-day SEC yield of nearly 12%. The 0.48% expense ratio is reasonable. The profit comes from the difference between the interest earned on the securities and the interest rate on the short term loans used to buy them. The bullish stance for mortgage REITs is that mortgage rates will go up while short term interest rates stay low. REITs are a hybrid investment that give a bond-like yield with the chance for capital appreciation.
The current low interest rate climate has helped mortgage REITs over the past year, and should continue to do so in 2013. However, as mortgage rates are in a downtrend, the spread is getting smaller, and the yield for REM will be forced lower in response.
Source: Tom Lydon, ETF Trends
REM is a component of the D2 Capital Management Multi-Asset Income Portfolio.
The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
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D2 Capital Management is a Member of the Southside Businessmen's Club and the Beaches Business Association
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