Every so often, there comes a reminder to look at the holdings in an exchange traded fund (ETF), along with their weightings.
iShares FTSE NAREIT Mortgage REIT (REM) holds a basket of real estate investment trusts that invests in mortgages. The idea of the fund is to provide exposure to the overall mortgage REIT sector, along with the notion that all or most sector ETFs are diversified, reports John Spence for MarketWatch.
As of Monday, nearly 29% of asset in REM were devoted to one company – Annaly Capital Management (NLY). This company generates profit by the spread between its borrowing costs and the yield on its investment portfolio. REM jumped 6% as of Monday, on the news concerning Fannie Mae and Freddie Mac.
The lesson here is to, once again, know what you are investing in. It turns out REM is a huge gamble on NLY, and there are only 22 holdings in the entire fund. REM is down 32.6% year-to-date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.