Conventional wisdom dictates that higher interest rates diminish the chances that homeowners will refinance their mortgage rates. Additionally, many mortgage REITs did not anticipate the sharp spike in interest rates and the result was a rash of dividend cuts from REM and MORT holdings.
“REM is one of a very select group of ETFs that offers a yield north of 9%. For comparison purposes, junk bond indices currently yield 6%, investment grade bonds 3%, and Treasuries in the low 2% range. REM currently offers a double-digit yield — abnormal, as it typically only achieves this on price dips. That’s also an extremely wide spread to Treasuries and other high-quality debt instruments,” according to InvestorPlace.
When Treasury yields surged two years ago, MORT posted a gain of just 1.1% while REM slid 2.7%, underscoring the inverse relationship these ETFs have to Treasury yields. Conventional wisdom dictates that higher interest rates diminish the chances that homeowners will refinance their mortgage rates. Additionally, many mortgage REITs did not anticipate the sharp spike in interest rates and the result was a rash of dividend cuts from REM and MORT holdings.
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“MORT owns a concentrated mix of 26 mREITs with a greater percentage of assets spread to the smaller holdings. MORT also charges a moderate expense ratio,” adds InvestorPlace.