After years of basement-dwelling lows, mortgage rates are on a steady move higher. While this does no favor for home purchasers and refinancers, it could help ETF investors in the VanEck Vectors Mortgage REIT Income ETF (MORT).
“According to the latest data, released Thursday by Freddie Mac, the 30-year fixed-rate average rose to 3.05 percent with an average 0.6 point,” a Washington Post article noted. “(Points are fees paid to a lender equal to 1 percent of the loan amount and are in addition to the interest rate.) It was 3.02 percent a week ago and 3.36 percent a year ago. The 30-year fixed average has risen for four consecutive weeks, something it hasn’t done since April 2019.”
MORT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Mortgage REITs Index (the “Mortgage REITs Index”). The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The Mortgage REITs Index may include small-, medium-, and large-capitalization companies. The fund has a net expense ratio of 0.41%.
MORT gives the discerning ETF investor access to:
- High Dividend Yield Potential: In recent years, yields from mortgage REITs have been higher than those of equity REITs and many income-oriented securities
- Pure Mortgage REIT Exposure: The fund tracks an index that offers pure play exposure to mortgage REITs
- An Industry in Transition: Mortgage REITs may potentially stand to benefit from the evolving mortgage finance market, but are sensitive to interest rate and regulatory changes
A Yield Enhancement Tool
The jury might still be out for traditional REITs that invest in real property as the vaccine rollout continues through 2021. In the meantime, fixed income investors looking to get extra yield without taking on riskier high-yield debt may want to consider mortgage REITs as an alternative.
“Unlike more traditional REITs, mortgage REITs don’t actually own real estate,” ETF Database analysis explained. “Instead, these entities generate revenue through real estate financing by issuing mortgages or acquiring loans and mortgage-backed securities.”
“The streams of revenue generated from these operations can often be substantial, making MORT a potentially attractive tool for investors seeking to enhance the current returns generated from their portfolios,” the analysis added. “As such, this ETF has the potential to be useful as a yield enhancement tool in a long-term portfolio, and it can certainly also be useful in shorter-term strategies as well.”
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