For investors suffering from a lack of profitability, real estate investment fund (REIT) ETFs have historically been an attractive option for generating regular portfolio income. But one of the often overlooked types of REITs offers particularly attractive returns: the mortgage REIT (mREIT).
Two of the five most profitable REIT ETFs are Mortgage REITs. IN Profitable ETF (MORT) VanEck Vectors Mortgage REIT and iShares Mortgage Real Estate ETF (REM) increase the annual dividend yield at the level of 6.98% and 6.62%, respectively.
A source: ETF database
What is a Mortgage REIT?
REITs are designed to give away the majority (90%) of their earnings as dividends, making them ideal for investors looking for a stable source of cash.
While traditional REITs own real estate and earn their dividends by renting their property, mortgage REITs act more like banks in the way they generate profits. They own mortgages and mortgage-backed securities, generating income through loans and lending.
This particular model may have a greater interest rate risk than a traditional stock REIT, but they are also inferior to the return on a stock REIT.
About MORT and REM
MORT is not just a high-yield fund: The ETF Index is up 71.62% over last year, making it the most performing REIT ETF in the past twelve months.
Its main holding is Annaly Capital, which accounts for 12.79% of the portfolio’s assets. Annaly is gaining momentum recently and currently has a dividend yield of over 10%. The company’s quarterly earnings will be released later this month.
The MORT portfolio of 24 items is quite concentrated, which means it may not seem as diverse as it is. However, since it owns a REIT, each of these 24 companies actually has access to hundreds or even thousands of individual mortgages and securities.
Meanwhile, REMs are up 71.09% over the past year, behind only MORT.
The two ETFs have many holdings in common, including Annaly Capital, but the REM portfolio has slightly more investments (currently 35 to 25 MORTs), which distributes its positions among small, medium and large cap companies.
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