Barron’s reports that the Fed’s QE3 has created some troubles for mortgage REITs, however.
“A rise in mortgage refinancings and bond prepayments, due to falling rates enabled by Fed policy and large Fed mortgage bond purchases, has left many agency mREITs such as Annaly Capital Management (NYSE: NLY) and American Capital Agency Corp. (NasdaqGS: AGNC) trading sharply lower than a month ago,” says Barron’s Michael Aneiro.
Those two stocks are the largest holdings in REM, the mortgage REIT fund, with a combined weighting of about 37%.
The Fed’s third round of quantitative easing has “pushed down bond yields, narrowed spreads and reduced homeowner borrowing costs — squeezing the firms’ earnings and dividends,” Bloomberg News reports. “The immediate challenge to mortgage REITs comes from a jump in homeowner refinancing driven by record rates. That will force the companies to write off the premiums they paid for bonds faster and reinvest at lesser yields.”
This week, UBS launched the ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEArca: MORL). The exchange traded note is designed to provide 200% leverage to mortgage REITs.
iShares FTSE NAREIT Mortgage Plus Capped Index Fund
