FTSE Nareit Mortgage REITs Performance and Investment Opportunities

FTSE Nareit Mortgage REITs have consistently outperformed the broader US equity market, with a 5-year total return of 62.5% compared to 45.1% for the S&P 500.

Their strong performance can be attributed to the low interest rate environment, which has boosted the value of their mortgage-backed securities.

The FTSE Nareit Mortgage REITs Index has a beta of 1.33, indicating that it is more volatile than the broader US equity market.

Investors seeking to tap into this outperformance can consider investing in mortgage REITs, but it's essential to understand the unique characteristics and risks associated with this sector.

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There are over 30 mortgage REITs listed on the FTSE Nareit US Real Estate Indexes that individuals can invest in directly with the help of a broker or by purchasing shares in a participating REIT mutual fund or REIT exchange-traded fund (ETF).

To invest in mortgage REITs, you can choose from a variety of options, including individual REITs, REIT mutual funds, or REIT ETFs.

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The mortgage REIT ETF, MORT, is a valuable portfolio building tool for yield-focused investors in this low-yield environment, offering a dividend yield greater than 14% as of July 31.

You can invest in mortgage REITs with a relatively low market capitalization, as the underlying index has an aggregate market capitalization of about $41 billion, with about half of the index in mid-cap stocks with market capitalizations between $1 billion and $5 billion.

To get started, you can use a broker to invest in individual mortgage REITs, or consider a REIT mutual fund or ETF, such as MORT, which tracks the performance of mortgage REITs.

Here are some key statistics for mortgage REITs:

Keep in mind that investing in mortgage REITs can be risky due to the use of leverage, which can amplify interest rate changes and affect the health of the U.S. mortgage market.

Mortgage REIT ETFs offer a way to invest in the mortgage REIT space with a low expense ratio of 0.40%.

The iShares FTSE NAREIT Mortgage REITs Index Fund (REM) has a 30-day SEC yield of nearly 11% and a 12-month yield of 10.4%.

REM lost more than 40% of its value in 2008, but posted solid gains in both 2009 and 2010.

The new ETF from Van Eck, MORT, will have a similar top holdings structure to REM, with the top three components being identical.

MORT is a "pure play" on the mortgage REIT space, with about 25 holdings compared to REM's 50.

The top-performing sector in the mortgage REIT space was home financing, with a yield of 13.51%.

The S&P 500 only produced a yield of 2.29% in comparison, making mortgage REITs a strong generator of income.

REITs have provided solid dividend yields so far this year, outpacing the S&P 500.

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U.S. REITs significantly outperformed the broader equity market in the first half of 2012, with the total return of the FTSE NAREIT All REITs Index up 4.55% in Q2 and 15.43% for the year overall.

The FTSE NAREIT Mortgage REITs Index surged 8.53% in Q2 and 18.39% overall, making it one of the top-performing sectors in the REIT market.

REITs have provided solid dividend yields so far this year, outpacing the S&P 500, with the dividend yield of the FTSE NAREIT Mortgage REITs Index yielding 12.92%.

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The new Mortgage REIT ETF will invest in about 25 different REITs, with the largest allocations going to Annaly Capital Management (about 20%) and American Capital Agency Corp (12%).

The underlying index has an aggregate market capitalization of about $41 billion, with about 20% of the fund allocated to companies with market caps of $5 billion or more, and about half of the index in mid cap stocks with market capitalizations between $1 billion and $5 billion.

Interest rates in the U.S. and many other developed economies are expected to remain at or near record lows, causing yields on Treasuries and other investment grade debt to shrink.

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Many investors have turned to other asset classes for current return, including dividend-paying stocks, MLPs, and international debt.

REITs have become a popular destination for investors seeking current returns, as tax regulations encourage significant distributions.

Mortgage REITs are different from traditional equity REITs, as they issue mortgages or acquire loans and other mortgage-backed securities.

The dividend yield on the underlying index was greater than 14% as of July 31, an impressive rate that dwarfs yields on most fixed income products.

Mortgage REITs can be risky investments, especially due to the use of leverage, but they can also generate impressive returns for investors looking to beef up the current income portion of their portfolios.

Jan van Eck, Principal at Van Eck Global, notes that yields from mortgage REITs have been higher in recent years than those provided by equity REITs and other income-oriented products.

The new ETF from Van Eck will charge an annual expense ratio of 0.40%, undercutting the existing FTSE NAREIT Mortgage REITs Index Fund (REM) by eight basis points.

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About a quarter of the assets of REM are in banks and other financial institutions, while MORT is more of a "pure play" on the mortgage REIT space.

The top three components of REM and MORT are identical, but REM has about 50 holdings compared to 25 for MORT.

The new Mortgage REIT ETF will offer investors a valuable portfolio building tool for yield-focused investors in this low-yield environment.

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U.S. REITs significantly outperformed the broader equity market in the first half of 2012, with all but one sector producing double-digit total returns.

The total return of the FTSE NAREIT All REITs Index was up 4.55% in Q2 and 15.43% for the year overall. The FTSE NAREIT All Equity REITs Index rose 4.00% in Q2 and 14.91% overall, and the FTSE NAREIT Mortgage REITs Index surged 8.53% in Q2 and 18.39% overall.

Retail is leading the pack, with a total return of 21.15% for the first two quarters. Industrial trusts delivered an 18.98% return in the second quarter, while Office trusts returned 13.73% and apartments returned 9.49%.

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Infrastructure scored the top-performing sector, with a 16.79% total return. Health Care and Mortgage REITs followed closely behind.

REITs have provided solid dividend yields so far this year, outpacing the S&P 500. The dividend yield of the FTSE NAREIT All REITs Index was 4.20%, while the yield of the FTSE NAREIT All Equity REITs Index was 3.29%.

Home Financing REITs led the mortgage index, with a yield of 13.51%. The S&P 500 only produced a yield of 2.29% in comparison.

REITs are required to pay out nearly all of their taxable income to shareholders, making them a strong generator of income in both up and down market environments.

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Annaly Capital Management is a leading mortgage REIT with a long history of success. It was founded in 1997 and has since grown to become one of the largest mortgage REITs in the US.

The company has a unique business model that focuses on investing in agency mortgage-backed securities. These securities are backed by government-sponsored entities such as Fannie Mae and Freddie Mac.

Annaly Capital Management has a significant presence in the FTSE NAREIT Mortgage REITs index, which tracks the performance of mortgage REITs. The company's shares are widely held by institutional investors and individual investors alike.

Annaly Capital Management has a strong track record of generating consistent dividend income for its shareholders. In fact, the company has increased its dividend payout for 25 consecutive years.

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