Show Me The Money: A Closer Look At Mortgage REITs

We believe that the mortgage REIT sector has been propelled by yield starved investors and backed by an MBS consuming Fed. While current (and near-term projected) rates will not mollify the yield hungry, the role of the Fed will be changing.

Summary

  • The largest buyer of agency MBS is going on a diet, leaving the market to absorb additional supply.
  • Mortgages continue to trade at tight spreads.
  • Our thoughts on the landscape and recommendations.

As many readers know, we are cautious investors, trying to position companies in the portfolio that have favorable characteristics and whose target markets are poised to grow.

It has been due to this approach that we have typically shied away from mortgage REITs, preferring to accept less in yield/income in order to avoid the volatility that this sector often brings (the notable exception being commercial real estate mortgage REITs).

While mortgage REITs have been on a tear this year (the FTSE NAREIT Mortgage REIT index is up 21% YTD, 27% annualized) we continue to buck the trend and turn a cautious eye towards this market.

Let us explain why....and welcome to my new series: Show Me The Money

Why Mortgage REITs?

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