REM holds a basket of Real Estate Investment Trusts (REITs) that concentrate on the beleaguered mortgage industry. Typically, these companies invest in distressed debt, buying up sour mortgages for pennies on the dollar.
Sometimes it works out, and sometimes it doesn’t.
With a yield over 10%, REM has drawn considerable interest this year, and its near-term price performance looks pretty good until you look at a longer-term chart. Over the past ten years, REM has lost 78.5% of its value, which more than wipes out its massive yield.
Looking under the hood, REM is heavily weighted toward high-yield mortgage REITs like Annaly Capital (18%), American Capital (10%), and Starwood Property Trust (8.5%). These companies are highly sensitive to interest rate fluctuations, and a rise in rates could completely erode their profits. That’s because they count on the spread between the money they borrow to purchase mortgage-backed securities and the yield these securities offer.
REM’s expense ratio of 0.48% is reasonable, especially considering its yield. But its high-risk nature makes the fund only suitable for investors who can handle the potential for substantial losses.
REM closed at $10.76 per share on Wednesday, down $0.05 (-0.46%). Year-to-date, the ETF has gained 12.55%.