Saturday, January 11, 2014

Too good to be true: MORL and maybe REM


I have money in REM, the iShares mREIT ETF. It's a spooky thing to own. It is a very heavily leveraged mREIT investment where the 'm' stands for 'mortgage'. I have looked at MORL, but the leverage needed to deliver the yield frightens the devil out of me.

I found this article: Mortage REITs: Does Doubling the Leverage Make Them a Good Investment? David Schawel makes a strong case for keeping one's distance from these ETFs and ETNs. The leverage necessary for something like MORL to deliver a yield in the 30% range is downright frightening Schawel agrees. He writes:

"I’d be scared to own mortgage REITs even before you double the leverage . . . "

Some of my early REM purchases were made when REM was selling for a little more than today. If and when REM climbs back to those previous high levels, I am selling those shares. I don't need that much risk.

Why don't I simply sell all my REM and get out of the mREIT game completely? Answer: The yield. I take the yield and reinvest it in safer places. It has just been too good a game to quit.

I may get burned.

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