Tuesday, November 12, 2013

Thoughts on REM

The iShares Mortgage Real Estate Capped Fund or REM was originally a $50 U.S. ETF. It didn't hold that lofty value long. It almost immediately began a slow and steady descent to the fifteen dollar level.

At the worst of the market crash, REM approached $10 U.S. but failed to break that barrier. If you put your faith in past numbers, you might think REM is coasting along just off the the bottom. Today, it is selling in the $11.50 U.S. range.

REM is composed of a number of companies in the mREIT business in the States. I have simplified the business model to the extreme when I say that money is borrowed at one interest rate and lent out at a higher one. The spread is the profit. These mREITs move massive amounts of profit straight to the investors' pockets.

Today REM is paying a dividend of better than 16 percent. This worries me. This payment falls into the "too-good-to-be-true" camp. Still I have owned REM for some time now, I was lucky and bought my shares of REM near the bottom. It has proven to be a wonderful addition to my portfolio.

I bought about 800 shares of REM yesterday at $11.50 U.S. and added this to my previous holdings. Will I buy more? Maybe. But unless it drops below $10 or I read something incredibly positive that I trust, I probably won't.

REM is a strong spice in my portfolio. It gives my income a much needed kick. Or, you might say REM is the high risk but high reward end of my barbell investment strategy. I've looked at the major players who make up the bulk of the REM holdings. All these mREITs ar fair to excellent investments on their own. Not a one appeared to be a poor choice.

Often ETFs have a few holdings one might consider dogs. I have a few ETFs like that. REM does not appear to fall into this trap, although there might be some small holdings of which I am unaware.

Today, holding REM makes my life easier. It provides me with much needed income in retirement. And in the small amount that I hold, it does not give me pause to worry. I can handle the loss if it should come. C'est la vie.

I wrote a follow up to this, REM might have further to fall, in Jan. 2014.