A. Mortgage REITs have had a good run lately. For a brief introduction of mortgage REITs, see our previous discussion here.
Despite the high yields of mortgage REITs, they have plenty of risks, it's mainly driven by Mortgage REITs' highly leveraged business model: borrow short-term and buy long-term mortgage-backed securities (MBS).
When interest rates rise, mortgage REITs' borrowing costs will increase, but the value of their holdings will decrease. When interest rates drop, more mortgages will be prepaid, which leads to the drop of the value of holdings.
If you are tempted by mortgage REITs' high yields and are okay with the risks, here are few good candidates:
- Annaly Capital Management (NLY)
- CYS Invetments (CYS)
- Invesco Mortgage Capital (IVR)
- VanEck Vectors Mortgage REIT Income (MORT)
- iShares Mortgage Real Estate Capped (REM)