Friday April 20, 2012
by Carla Pasternak, editor High-Yield Investing
This mortgage REIT fund is a new product from Van Eck Global, which runs a family of funds. Launched in August 2011, Market Vectors Mortgage REIT Income ETF (MORT) is a pure play on mortgage REIT'
About two-thirds of the component companies in its index focuses on high-quality agency residential mortgage-backed securities (RMBS), with the rest invested in non-agency RMBS and commercial mortgages.
The index has 25 member companies, with two mREITS -- Annaly Capital and American Capital Agency -- making up 31% of the fund's holdings.
Four other mREITs -- Two Harbors Investment, MFA Financial, Hatteras Financial and Chimera Investment -- each contribute an average 5% weighting. Together, these six mREITs account for more than 50% of the fund's total assets.
MORT is still a small fund with net assets of just over $26 million (versus $298 million for REM). It trades an average daily volume of around 12,000 shares a day. An expense ratio of 0.52% takes a small bite from total returns.
Distributions vary with payouts of the underlying index members. In its short eight-month life, the fund has made three quarterly distributions: $0.68, $0.62 and $0.627.
The latest dividend of $0.627 annualizes to around $2.50, providing an estimated forward yield of around 10%. Distributions are taxable as ordinary income, so the fund is appropriate for a tax-sheltered account.
It's still early to judge MORT's performance after only eight months on the market. On a price (as opposed to net asset value) basis, total returns year to date of 10.1% are slightly ahead of the S&P 500.
As a pure play on the mortgage REIT sector, with no other diversified revenue streams, MORT price and yield performance is highly exposed to interest rate changes due to government intervention and the economy.
That said, as long as the economy continues its modest recovery and the Fed does not feel compelled to implement QE3, the mREIT sector should continue to navigate turbulent waters.
Action to Take --> MORT provides diversification among 25 different mortgage REITs. However, it sacrifices several hundred basis points of yield to achieve this diversification compared to higher yielding individual REITs.
However, the ETF is suitable for you if you seek exposure to the high yields of the mortgage REIT sector, but don't wish to put all your eggs in one basket.
If you decide to buy MORT, consider placing a limit order only slightly above the trading price, as the shares trade less than 13,000 daily.
Learn more about this financial newsletter at Carla Pasternak, editor High-Yield Investing.