Due to the recovery in the housing market, real estate investment trust stocks are on the rise as investors look again at investments derived from bets on mortgage credit, according to an article by Andrea Riquier for MarketWatch.
Although year-to-date share price appreciation among mortgage REITs may be mixed, some have shown improvement even in the double digits, according to the article.
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(Source: MarketWatch, FactSet)
From the article:
Mortgage REITs offer chunky yields by raising money in short-term markets like the overnight repurchase, also known as repo, market, to borrow more in order to buy mortgage securities.
For mortgage REITs, “interest rate volatility is not your friend,” said Rick Daskin, who runs investment firm RSD Advisors. When rates are volatile, it costs managers more to hedge.
The REITs do best in a particular environment, Daskin thinks: a positive yield curve, stable interest rates and spreads between mortgage rates and Treasury yields, and a “reasonably performing” real estate market. Many analysts believe that describes the current economy.
Overall, 2015 fared well for REITs with core earnings of $389 million, a 77% increase from 2014, according to the article. The dividends paid out also increased by 63%.