This article was originally published on ETFTrends.com.
Investors looking for alternative sources of income may want to give mortgage real estate investment trusts (mREITs) a look. Those who don't want to stock pick in this high-yield asset class can turn to exchange traded funds, including the VanEck Vectors Mortgage REIT Income ETF (MORT).
The $324.6 million MORT, which turned 10 years old last week, follows the MVIS US Mortgage REITs Index. Investors often embrace for REITs for above-average yields, but MORT really ratchets up that proposition. For example, the fund sports a 30-day SEC yield of 8.05%, which is well above what investors earn with standard REIT ETFs.
MORT is bouncing back from its COVID-19 nadir and offers investors more potential for capital appreciation along with that tempting yield.
“Mortgage real estate investment trusts are one such area, as the sector offers near double-digit yields and, in some cases, the opportunity for meaningful price appreciation. This comes after the sector got a scare at the beginning of the pandemic, thanks to a series of margin calls owing to mostly short-term financing that was marked to market at depressed prices during the initial rout,” reports Carleton English for Barron's.
Home to 25 mREITs, MORT is higher by 12.42% year-to-date. There is potential for that number to matriculate higher if prognostications on some of the fund's components prove accurate. MFA Financial (NYSE:MFA) is an example of a MORT holding analysts are enthusiastic about.
“The New York–based REIT has lowered its cost of funding through securitizations, recognizing a 15% quarter-over-quarter drop in interest expense from the most recent quarter. Roughly two-thirds of its asset-based financing is nonmark-to-market, with the bulk of that portion coming from securitizations,” according to Barron's.
MFA Financial is the eleventh-largest MORT component at a weight of 4.05%. Redwood Trust (NYSE:RWT) is another MORT holding that Wall Street likes.
According to Barron's: “'We expect strong mortgage banking activity, recovering asset prices, and increased call activity to enable [Redwood Trust] to generate solid ROE and grow book value (and potentially the dividend),' wrote Bose George, analyst at KBW, in a note last month.”
Redwood Trust accounts for 2.63% of MORT's roster as of Aug. 23.
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