Wednesday, July 10, 2013
More From the It Was An Accident Waiting to Happen Club
wsj March 6,2013
As stock real estate funds strive for a fifth-straight year of gains, a hybrid type of investment offering plumper dividends is off to an even better start.
Real estate investment trusts that buy mortgage-backed securities rather than buildings or land are posting double-digit returns and attracting strong investment flows.
The $1.1 billion iShares Mortgage REIT Capped (REM) exchange-traded fund enters Wednesday ahead by 12.5% so far in 2013. In the past 12 months, the ETF has attracted nearly $727 million in net inflows through last week, estimates New York market researcher XTF Global.
Wsj May 29, 2013
Mortgage REITs borrow money using short-term debt and use the funds to buy longer-term mortgage securities, earning the spread between the rates. They also use leverage to boost their returns. The low interest- rate environment greatly reduced their borrowing costs and enabled them to make more money off their bond portfolio. In addition, the low rates drove investors into REITs that promise high returns......
The mortgage declines were part of a broader rate-induced selloff as REITs underperformed the broader market. The closely followed MSCI US REIT Index was down 3.1% while the S&P 500 slid nearly 1%......
David Toti, an analyst at Cantor Fitzgerald, said REITs have long benefitted as an alternative to bonds because of their higher yields. The low interest-rate environment has also been instrumental in helping REITs raise inexpensive capital to repay debt and build war chests for acquisitions.
“Guess what? REITs don’t like the higher cost of debt,” Toti said.
But over at seeking alpha hope springs eternal