Speculation that the Federal Reserve is mulling winding down or an outright end to its asset-buying activities has weighed on mortgage REIT ETFs recently. Funds previously prized for high yields tumbled last week because mortgage-backed securities are vulnerable to rising interest rates.
The iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEArca: REM) and the rival Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT) fell more than 4% last week.
Woes for REM, the larger of the two ETFs almost $1.2 billion in assets, and MORT can in part be attributed to quantitative easing tapering concerns plaguing individual mortgage REIT stocks. Annaly Capital (NYSE: NLY) and American Capital Agency (NasdaqGS: AGNC) sold off last week with American Capital down 6.5% for the week at one point. [Mortgage REIT ETFs: Yields And Risks]
Those two stocks account for massive percentages REM and MORT’s respective weights. REM devotes 37.4% of its weight to those stocks while the pair accounts for over 30% of MORT’s weight. [Comparing Two High Yield Mortgage REIT ETFs]
REM and MORT are not the only ETFs to have suffered due to the tapering talk. The iShares Barclays MBS Bond Fund (NYSEArca: MBB), while not down by much for the week, has endured some volatility. MBB, home to $6.52 billion in assets, offers exposure to U.S. agency mortgage-backed bonds, including Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC) securities.
That may not be a good thing as low interest rate MBS are among the assets the Fed has been buying.