“Mortgage REITs are very susceptible to the risk of rising short-term rates. Until recently, mortgage REITs have benefited from the Fed’s easy money policy. The Fed’s historically low near-zero interest rate makes financing cheap, allowing mortgage REITs to use leverage to provide an attractive yield. However, because these firms are so extensively leveraged, they are very susceptible to interest-rate fluctuations,” Woodham notes.
“Even the whisper of changing rates can send the market into a panic, as seen over the past three months,” she added.
iShares Mortgage Real Estate Capped ETF
Full disclosure: Tom Lydon’s clients own REM.