Mortgage REITs could become income havens amid rising interest rates

Among the highest yielding assets in the real estate sector and beyond, it’s no surprise that mortgage real estate investment trusts (mREITs) have endured higher interest rates this year.

However, some experts believe the asset class is set to recover, which could be good news for the US. VanEck Mortgage REIT Income ETF (MORT)Following the MVIS US Mortgage REITs Index, MORT promises great returns as highlighted by its 14.37% distribution ratio.

There’s no denying it’s an above-average reward, and investors can take advantage of it all, as mREITs have plummeted due to the Federal Reserve’s six rate hikes. In better news, the tide could turn in his MORT’s favor.

“Getting out of this dire narrative is an investment opportunity. High MBS yields are starting to attract investors from other sectors of the credit market, such as corporates.” Randall Forsyth of Barron’s reports. “For retail investors with a speculative stomach, a beaten real estate investment trust with a leveraged mortgage portfolio offers a stunning yield of 20%. Alternative to mortgage REITs (mREITs). There are also less risky options, with lower yields in the 8% to 11% range, but still generous.”

The $151.6 million MORT has 26 mREITs, a solid sample of publicly traded stocks in this asset class. Together, Annaly Capital Management (NYSE: NLY) and Starwood Property Trust (NASDAQ: STWD) make up about 23% of the ETF roster.

Retail investors are often lured by the large yields that MORT clearly offers. This could indicate support for home gamers buying this ETF for a nice income stream.

“Institutions such as hedge funds and other total return investors are increasingly turning to mortgage-backed securities as yields are rising,” said Adam Abbass, co-head of fixed income at Harris Associates. The sector is attractive to investors looking for yields that are much higher than U.S. Treasuries.”.

In an interview with Barron’s, Harley Bassman, former head of mortgages at Merrill Lynch, made several points in favor of mREITs.

“The supply of new MBS will shrink significantly as declining affordability slows housing activity. or trade at a significant discount to par, so prices should benefit if yields fall (in contrast, MBS above par tend to be canceled when borrowers refinance). There is, and it will be a disadvantage for investors.)”

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Opinions and projections expressed herein are Tom Lydon’s personal opinions and may not come to fruition. Information on this site should not be used or construed as an offer to sell, the solicitation of an offer to buy, or a product endorsement.

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