The hunt for meaningful yield amid a landscape dominated by low-rate central bank policy has proven to be a challenge even for the most seasoned value investors. Luckily, the exchange-traded universe is vast and when it comes to dividend ETFs, investors can beef up their portfolio's current income through a variety of options. One particular breed of products that is evading the radar of many warrants a closer look as it stands to offer a very attractive source of yield without handfuls of volatility .
Mortgage REITs In Focus
Mortgage REIT ETFs have turned in a stellar performance year-to-date as these funds have managed to outperform their broad-based Real Estate ETF counterparts in terms of volatility and dividend yield as well. This segment of the real estate market has been able to thrive as low interest rates have kept on a lid on theperceivedrisks that are otherwise associated with these securities.
By nature, REITs have always held a spot in income-investors' hearts; these securities must pay out 90% of their income toshareholders in order to avoid taxation at the corporate level. As such, this breed of dividend-paying stocks has a history of generating high-yields although, as therecentfinancialcrisisdemonstrated, this corner of the market is also laced with risks. Nonetheless, the current economic environment is ripe with opportunities in the real estate sector as borrowing costs are expected to remain low through 2015. Furthermore, the Fed's announcementof QE3 has spurred even greater interest in the mortgage REIT industry; the new stimulus program will look to purchase roughly $40 billion in mortgage-backed securities each month, injecting both resources and confidence to fuel the sluggish recovery .
When considering the table below, it's quite clear that Mortgage REITs offer a superior risk/return profile relative to the broad domestic REIT market as represented by the biggest fund in the space, the Vanguard REIT ETF (VNQ) :
|Ticker||ETF||YTD Return||200-Day Volatility||30-Day SEC Yield|
|REM||iShares FTSE NAREIT Mortgage REITs Index Fund||30.28%||9.93%||12.34%|
|MORT||Van Eck Market Vectors Mortgage REIT Income ETF||29.68%||9.95%||11.15%|
|VNQ||Vanguard REIT ETF||14.96%||14.99%||3.30%|
REM Vs. MORT
The bigger of the two Mortgage REIT funds, REM, has accumulated just over $930 million in assets under management since launching in mid-2007. This iShares offering charges 0.48% in annual expenses, features a quarterly dividend distribution, and looks to track the performance of the residential and commercial real estate, mortgage finance and savings associations sectors of the U.S. stock market. This ETF holds 30 securities in total and the top ten account for over two-thirds of total assets; Annaly Capital Management and American Capital Agency Corp. make up over one-third of the entire portfolio .
MORT trails in assets having launched in late 2011, however, this ETF takes home the cake when it comes to costs; the Van ECK mortgage REIT ETF charges only 0.40% in annual expenses. This fundincludes companies and trusts that are primarily engaged in the purchase or service of commercial or residential mortgage loans or mortgage-related securities.MORT is comprised of 25 securities in total, and the top twoindividualholdings are identical to those of REM and also account for asignificantportion of total assets.
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Disclosure: No positions at time of writing.