REM ETF

The iShares Mortgage Real Estate Capped ETF invests in 33 US mREITs but holds a significant 65% concentration in its top ten holdings. Muted year-to-date performance has resulted in REM trading at a significantly higher dividend yield relative to the SPY. REM's dividend is well-covered considering the valuations of its top ten holdings.

The iShares Mortgage Real Estate Capped ETF has substantially underperformed the SPDR S&P 500 ETF in 2024. Top ten holdings account for about 65.47% of REM's net assets. The ETF offers a well-covered ~9% yield even after the 0.48% expense ratio.

The iShares Mortgage Real Estate Capped ETF consists of US mortgage REITs that primarily deal with residential mortgages. While some REITs in REM are struggling in the office real estate market, we are relieved that the ETF's office exposure is not excessive. If it were, we would see it as a concern. We believe that the key factor the Fed has been anticipating for its policy to be effective is the maturity walls, which could impact the real economy by leading to increased unemployment.

The iShares Mortgage Real Estate ETF is a sell for investors seeking dependable income over time. The fund has generated lower total returns compared to the market, and its dividends have declined significantly over the past decade. The fund lacks diversification, with a majority of its portfolio concentrated in just ten companies, some of which have experienced declining dividends.

Investing directly in real estate properties requires a large amount of capital and many other resources that most average investors cannot access. But, for investors looking to gain exposure to the real estate market and the many benefits of real estate investing, REITs (real estate investment trusts) are the way to go.

Housing market may face trouble due to high mortgage rates and a potential recession, making iShares Mortgage Real Estate Capped ETF a risky investment. The REM ETF offers high dividend yield, exposure to U.S. real estate sectors, and strong liquidity, making it attractive for income-focused investors. However, REM's portfolio mainly consists of high-risk mortgage REITs, is sensitive to interest rate fluctuations, and has concentration risk.

Mortgage rates have reached a 20-year-high, increasing borrowing costs in the real estate market. The iShares Mortgage Real Estate Capped ETF has a hold rating due to its high yield and strong liquidity, but there are significant risks including concentration and seasonality. REM has a concentrated portfolio, with the top four positions comprising over 40% of the portfolio, and tends to perform well in November and December.

Data extracted from all of VettaFi's digital properties from the data and analytics tool Explorer indicate that investor interest in real estate ETFs has remained steady in the past three months. VettaFi's LOGICLY tool allows us to examine some of the leading ETFs in the U.S. real estate space.

iShares Mortgage Real Estate Capped ETF invests in all major mortgage-based real estate investment trusts, and generates strong yields, averaging in double-digits over a long-term horizon. REM is a top-heavy fund (60 percent of assets invested only in 7 stocks) with a relatively high-risk profile. Fund is more volatile than the overall market. As interest rates have moved up, there lie strong opportunities for mREITs. The residential real estate sector has also started posting strong recoveries.