With interest rates still low in the U.S., another REIT ETF to consider is the iShares Mortgage Real Estate Capped ETF (NYSEArca: REM). REM currently yields nearly 8.7%.
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REM and its holdings faced headwinds last year as market participants came to grips with the fact that the Federal Reserve would raise interest rates for the first time in nearly a decade. Mortgage REITs have exhibited a negative correlation to interest rates changes, especially if the yield curve flattens. Many agencies use leverage to capitalize on the arbitrage spread between short- and long-term interest rates, so companies can still make money in a rising rate environment, as long as long-term rates rise faster than the short-term rate or if the yield curve steepens.
REM “features a heavily concentrated lineup. Just two stocks — Annaly Capital and AGNC Investment REIT Corp. (NASDAQ: AGNC) — combine for almost 28% of this REIT ETF’s roster. REM has a three-year standard deviation of 11%,” according to InvestorPlace.
For more information on real estate investment trusts, visit our REITs category.