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U.S. housing market faces pressure as mortgage rates rise to 6.87%, highest in 2 months. Inflation data and bond yields trigger market sell-off.

Sticky Inflation, Surging Treasury Yields Push Mortgage Rates To 2-Month Peak: Real Estate Stocks Tumble

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Mortgage Bankers Association data indicates a significant drop in mortgage rates, hinting at improved affordability and a potential revival in the housing market.,Treasury bond yields have dropped, pushing long-term mortgage rates lower.

US Mortgage Rates Drop To 6-Month Low: A Turning Point For The Housing Market?

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Federal Reserve Chair Jerome Powell signals possible rate cuts in 2024, sending real estate stocks soaring to outperform all other sectors in the S&amp;P 500.

Santa Rally Boosts Real Estate Stocks: 5 ETF Picks To Ride The Fed Rate Cut Wave

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The U.S. housing market faces increased pressure as the average contract interest rate for 30-year fixed-rate mortgages rose by seven basis points to 6.87%, a peak not seen in <a href="https://www.benzinga.com/real-estate">the past two months.</a>
This rise in mortgage rates, as reported by the Mortgage Bankers Association (MBA) on Wednesday, is a direct consequence of a slew of robust economic data and stickier-than-expected inflation, which have pushed long-term benchmark Treasury yields higher.
Amid these rising rates, the mortgage sector has experienced a downturn in activity, indicating the rising cost of borrowing for prospective homeowners. This was evidenced by a 2.3% decrease in mortgage applications, a notable pullback from the 3.7% gain observed in the preceding week. 
Chart: Mortgage Rates Saw A New Uptick Last Week
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25-1024x495.png" alt="" class="wp-image-215751" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25-1024x495.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25-300x145.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25-768x372.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25-1536x743.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14092951/image-25.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
<h2 class="wp-block-heading">January&#8217;s Inflation Surprised To The Upside, Yields Rise</h2>
In January, the U.S. annual inflation rate was 3.1%, slowing down from December&#8217;s 3.4% print but coming in above expectations of 2.9%. The monthly rise in the Consumer Price Index (CPI) basket was also higher than expected (0.3% vs. 0.2%).
Particularly alarming was the core inflation rate, excluding volatile energy and food prices, which held firm at 3.9% year-on-year in January, surpassing the anticipated 3.7%.
Read also: <a href="https://www.benzinga.com/markets/equities/24/02/37105400/magnificent-7-lose-more-than-250-billion-as-blazing-inflation-data-triggers-market-sell-off">Magnificent 7 Lose More Than $250 Billion As Blazing Inflation Data Triggers Market Sell-Off</a>
The bond market, which plays a critical role in setting mortgage rates, reacted sharply to the inflation data. The yields on 10-year and 30-year Treasuries climbed to 4.30% and 4.47%, respectively, on Tuesday, echoing levels last seen in early December 2023, reflecting growing investor apprehension towards a resumption of inflationary pressures. 
Chart: 30-Year Treasury Yields Nears 4.5%, The Highest Since Late November
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27-1024x495.png" alt="" class="wp-image-215754" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27-1024x495.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27-300x145.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27-768x372.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27-1536x743.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093102/image-27.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
<h2 class="wp-block-heading">Traders Trim Rate Cut Bets, Mortgage-Related Stocks Sink</h2>
Market speculators have adjusted their expectations regarding Federal Reserve rate cuts, now anticipating less than a full percentage point of cumulative reductions by December 2024—a significant revision from the 175 basis points anticipated just a month earlier.
Following the inflation report and the bond market&#8217;s response, the real estate sector emerged as one of the most adversely affected, with the Real Estate Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLRE#NYSE">XLRE</a>) experiencing a 1.8% decline on Tuesday, reaching monthly lows. 
Similarly, the mortgage industry, as tracked by the iShares Mortgage Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/REM#NYSE">REM</a>), plummeted by 3.9%, marking its lowest point since mid-November 2023.
Among the most impacted stocks were Claros Mortgage Trust, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CMTG#NYSE">CMTG</a>), which saw an over 8% drop, Ares Commercial Real Estate Corporation (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ACRE#NYSE">ACRE</a>), down by 7.8%, and New York Mortgage Trust, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/NYMT#NYSE">NYMT</a>), which fell by 6.3%.
Chart: Mortgage Real Estate Stocks Have Retraced More Than Half Of The Oct-Dec Rally
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29-1024x495.png" alt="" class="wp-image-215767" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29-1024x495.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29-300x145.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29-768x372.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29-1536x743.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/02/14093519/image-29.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
Read now: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/02/37099227/economists-sound-alarm-on-inflations-stubborn-grip-no-chance-inflation-will-return-">Economists Sound Alarm On Inflation&#8217;s Stubborn Grip: &#8216;No Chance Inflation Will Return To 2%&#8217; Without New Rate Hikes</a>
Image created with photos from Shutterstock.

After months of relentless interest rate hikes and dwindling volumes, the U.S. mortgage market is finally glimpsing light at the end <a href="https://www.benzinga.com/real-estate">of a long tunnel. </a>
Recent data from the Mortgage Bankers Association (MBA) indicates a significant drop in mortgage rates, hinting at improved affordability and a potential revival in the housing market.
<h2 class="wp-block-heading">Key Developments In The US Mortgage Market</h2>
<ol>
<li>Drop In 30-Year Fixed Mortgage Rates:
<ul>
<li>The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) declined to 6.83% in the week ending Dec. 15, 2023.</li>
<li>This rate marks a sixth-straight week of declines and a new low since June 2023. </li>
</ul>
</li>
<li>Economic Factors Influencing The Decline:
<ul>
<li>Mike Fratantoni, MBA's SVP chief economist, attributes this decrease to positive news about inflation reduction and the Federal Open Market Committee&#8217;s (FOMC) pivot towards rate cuts.</li>
<li>In its last meeting of the year, the Fed signaled that the median preferred interest-rate path suggests cuts totaling 75 basis points in 2024 and an additional reduction of 100 basis points in 2025. </li>
<li>U.S. Treasury bond yields have significantly fallen, with the 10-year Treasury yield dropping from 5% in October to 3.90% as of Dec. 20, pushing long-term mortgage rates lower.</li>
</ul>
</li>
<li>Mortgage Application Trends: While a 1.5% slowdown in the pace of new mortgage applications occurred last week, a year-over-year comparison shows a more favorable trend. The number of mortgage applications for purchasing a home, or refinancing one, are up by 18% compared to the same period last year.</li>
</ol>
Read also: <a href="https://www.benzinga.com/markets/equities/23/12/36246830/santa-rally-boosts-real-estate-stocks-5-etf-picks-to-ride-the-fed-rate-cut-wave">Santa Rally Boosts Real Estate Stocks: 5 ETF Picks To Ride The Fed Rate Cut Wave</a>
Mortgage data released last week by Freddie Mac also unveiled a decline in the 30-year average rate below 7%. According to Sam Khater, Freddie Mac's chief economist, &#8220;given inflation continues to decelerate and the Federal Reserve Board's current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year."
<h2 class="wp-block-heading">Sector Performance</h2>
Lately, stocks in the real estate sector have experienced an impressive surge, with the Real Estate Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLRE#NYSE">XLRE</a>) climbing 24% since late October. Particularly noteworthy within this sector is the performance of companies heavily influenced by residential mortgage rates. This segment, represented by the iShares Mortgage Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/REM#NYSE">REM</a>), has experienced a 30% increase in the same timeframe.
Standout performers in this sector include Arbor Realty Trust Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ABR#NYSE">ABR</a>) and Claros Mortgage Trust Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CMTG#NYSE">CMTG</a>), which have seen their stock prices soar by 29% and 39%, respectively.
Chart: REM vs XLRE 2-Month Performance
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f-1024x495.png" alt="" class="wp-image-165709" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f-1024x495.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f-300x145.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f-768x372.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f-1536x743.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/20095225/XLRE_2023-12-20_14-52-10_66c6f.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
Now read: <a href="https://www.benzinga.com/money/best-reits">Best REITs to Buy</a>
Photo: Shutterstock

The early arrival of a Santa Claus rally has graced the real estate sector, with the bearer of good tidings being none other than Federal Reserve Chair Jerome Powell, who has signaled the <a href="https://www.benzinga.com/economics/macro-economic-events/23/12/36225016/powell-signals-peak-interest-rates-foresees-cuts-in-2024-markets-rally-traders-ex">possibility of interest rate cuts in 2024</a>.
This anticipation, coupled with the sector&#8217;s high sensitivity to the move in Treasury yields — with the 10-year note falling below the 4% threshold — has triggered a spectacular bullish wave across real estate stocks in recent sessions.
Since the release of the Federal Open Market Committee (FOMC) rate statement and Powell&#8217;s subsequent press conference Wednesday, no sector within the S&amp;P 500 index has seen growth anywhere near <a href="https://www.benzinga.com/real-estate">that of real estate</a>. 
<h2 class="wp-block-heading">Market Snapshot: S&amp;P 500 Sector Performance Since Fed Meeting</h2>
A glimpse at the S&amp;P 500 sector performance since 2 p.m. Wednesday to 3 p.m. Thursday reveals the following:
<figure class="wp-block-table"> 
<table>
<thead>
<tr>
<th>ETF Name</th>
<th>Performance (%)</th>
</tr>
</thead>
<tbody>
<tr>
<td>Real Estate Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLRE#NYSE">XLRE</a>)</td>
<td>+6.21%</td>
</tr>
<tr>
<td>Energy Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLE#NYSE">XLE</a>)</td>
<td>+4.07%</td>
</tr>
<tr>
<td>Materials Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLB#NYSE">XLB</a>)</td>
<td>+3.58%</td>
</tr>
<tr>
<td>Consumer Discretionary Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLY#NYSE">XLY</a>)</td>
<td>+3.29%</td>
</tr>
<tr>
<td>Industrials Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLI#NYSE">XLI</a>)</td>
<td>+2.67%</td>
</tr>
<tr>
<td>Financial Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLF#NYSE">XLF</a>)</td>
<td>+2.46%</td>
</tr>
<tr>
<td>Utilities Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLU#NYSE">XLU</a>)</td>
<td>+1.23%</td>
</tr>
<tr>
<td>Communication Services Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLC#NYSE">XLC</a>)</td>
<td>+1.2%</td>
</tr>
<tr>
<td>Health Care Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLV#NYSE">XLV</a>)</td>
<td>+0.48%</td>
</tr>
<tr>
<td>Technology Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLK#NYSE">XLK</a>)</td>
<td>+0.47%</td>
</tr>
<tr>
<td>Consumer Staples Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLP#NYSE">XLP</a>)</td>
<td>-0.06%</td>
</tr>
</tbody>
</table>
</figure>
Read also: <a href="https://www.benzinga.com/economics/macro-economic-events/23/12/36243865/why-fed-rate-cuts-could-propel-real-estate-small-cap-gold-miners-solar-stocks-to-">Real Estate, Small-Cap, Gold Miner, Solar Stocks Go Wild On Prospect Of Fed Rate Cuts</a>
<h2 class="wp-block-heading">Chart: Real Estate Outperforms All Other Sectors Since Fed&#8217;s Dovish Pivot </h2>
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="495" src="https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce-1024x495.png" alt="" class="wp-image-161925" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce-1024x495.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce-300x145.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce-768x372.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce-1536x743.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/12/14162148/XLRE_2023-12-14_20-19-30_fbfce.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
<h2 class="wp-block-heading">Top Real Estate Stock Movers</h2>
Leading the performance within this week&#8217;s XLRE ETF are the following stocks:
<figure class="wp-block-table"> 
<table>
<thead>
<tr>
<th>Name</th>
<th>Industry</th>
<th>Price Chg. % (5D)</th>
</tr>
</thead>
<tbody>
<tr>
<td>Prologis, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/PLD#NYSE">PLD</a>)</td>
<td>Industrial REITs</td>
<td>14.91%</td>
</tr>
<tr>
<td>Boston Properties, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BXP#NYSE">BXP</a>)</td>
<td>Office REITs</td>
<td>13.05%</td>
</tr>
<tr>
<td>Extra Space Storage Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/EXR#NYSE">EXR</a>)</td>
<td>Specialized REITs</td>
<td>12.52%</td>
</tr>
<tr>
<td>Kimco Realty Corporation (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/KIM#NYSE">KIM</a>)</td>
<td>Retail REITs</td>
<td>11.57%</td>
</tr>
<tr>
<td>Simon Property Group, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPG#NYSE">SPG</a>)</td>
<td>Retail REITs</td>
<td>10.96%</td>
</tr>
<tr>
<td>Host Hotels &amp; Resorts, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/HST#NYSE">HST</a>)</td>
<td>Hotel and Resort REITs</td>
<td>10.29%</td>
</tr>
<tr>
<td>Essex Property Trust, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ESS#NYSE">ESS</a>)</td>
<td>Residential REITs</td>
<td>10.28%</td>
</tr>
<tr>
<td>Alexandria Real Estate Equities, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ARE#NYSE">ARE</a>)</td>
<td>Office REITs</td>
<td>10.07%</td>
</tr>
<tr>
<td>CBRE Group, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CBRE#NYSE">CBRE</a>)</td>
<td>Real Estate Management and Development</td>
<td>9.75%</td>
</tr>
</tbody>
</table>
</figure>
<h2 class="wp-block-heading">5 ETFs To Get Exposure To Rate-Sensitive Real Estate Stocks</h2>
The XLRE ETF provides extensive coverage of the real estate sector, encompassing a variety of industries including industrial, office, hotel and resort, residential and specialized REITs. 
A similar broad exposure is offered by the Vanguard Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/VNQ#NYSE">VNQ</a>) and the iShares U.S. Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IYR#NYSE">IYR</a>), both of which have displayed performance nearly identical to XLRE in the last two sessions.
Within the realm of real estate-linked ETFs, two in particular have shown even more remarkable performance.
For investors seeking exposure to U.S. REITs that hold residential and commercial mortgages, the iShares Mortgage Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/REM#NYSE">REM</a>) is the go-to. This ETF in particular has also benefited from a Thursday announcement by Freddie Mac, which reported a dip in the average rates for 30-year mortgages below 7% for the first time since August.
The REM ETF has rallied 7.3% since the Fed meeting, outperforming the aforementioned funds.
Finally, there is a leveraged ETF, the Direxion Daily Real Estate Bull 3X Shares (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/DRN#NYSE">DRN</a>), which has skyrocketed 18% in the last two sessions, offering a more aggressive bet on the real estate sector&#8217;s bullish run.
Read now: <a href="https://www.benzinga.com/money/best-reits">Best REITs to Buy</a>
Photo: Shutterstock, Unsplash and <a href="https://www.flickr.com/photos/imfphoto/" target="_blank" rel="noreferrer noopener">International Monetary Fund</a> on Flickr.

The latest data from the Mortgage Bankers Association (MBA) revealed a significant uptick in U.S. mortgage applications, marking a 3% increase from the previous week and the sharpest weekly <a href="https://www.benzinga.com/mortgage-rates">rise in two months.</a>
The surge came during a decrease in the average contract interest rate for 30-year fixed-rate mortgages, now at 7.41%, the lowest in two months.
Joel Kan, MBA's vice president and deputy chief economist, stated a reduction in U.S. bond yields triggered a decline in mortgage rates as incoming data signaled a softer economy and more signs of cooling inflation. 
"Mortgage applications increased to their highest level in six weeks, but remain at very low levels,&#8221; he added.
Yields on a 30-year Treasury bond fell to 4.53% at the time of this writing, marking the lowest level in two months. The popular iShares 20+ Year Treasury Bond ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TLT#NASDAQ">TLT</a>) has rallied over 10% over the past month, 
<h2 class="wp-block-heading">Chart: 30-Year Mortgage Rates Drop To 7.41%, Providing Relief To Applications</h2>
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="760" src="https://editorial-assets.benzinga.com/wp-content/uploads/2023/11/22105415/USMR_2023-11-22_14-53-22_d6fc2-1024x760.png" alt="" class="wp-image-148146" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2023/11/22105415/USMR_2023-11-22_14-53-22_d6fc2-1024x760.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/11/22105415/USMR_2023-11-22_14-53-22_d6fc2-300x223.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/11/22105415/USMR_2023-11-22_14-53-22_d6fc2-768x570.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2023/11/22105415/USMR_2023-11-22_14-53-22_d6fc2.png 1455w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
This rise in mortgage applications signaled a potential shift in the housing market, possibly driven by cooling inflation and a more approachable interest rate environment.
In its latest housing market outlook, Morgan Stanley anticipated improving affordability for U.S. houses heading into 2024. 
Morgan Stanley's experts believed a decrease in mortgage rates could spur a rise in the availability of homes for sale, leading to a modest drop in home prices, around 3%, by the end of 2024. 
However, the sustainability of this trend remained to be seen, especially considering the still subdued levels of refinance applications.
Read Also: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/23/11/35898749/us-housing-market-braces-for-affordability-as-mortgage-rates-ease-what-analysts-exp">US Housing Market Braces For Affordability As Mortgage Rates Ease: What Analysts Expect For 2024</a>
Market Reactions: Real estate stocks, as tracked by the Real Estate Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLRE#NYSE">XLRE</a>), rose 0.7% minutes after the opening bell on Wednesday. Prologis Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/PLD#NYSE">PLD</a>), American Tower Corp. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/AMT#NYSE">AMT</a>), CoStar Group Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/CSGP#NASDAQ">CSGP</a>) figured among the sector&#8217;s best performers for the day, each posting a 1% increase. 
The iShares Mortgage Real Estate ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/REM#NYSE">REM</a>) also showed a similar performance. Today&#8217;s top performers in this niche included NexPoint Real Estate Finance, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/NREF#NYSE">NREF</a>), up 2.2%, BrightSpire Capital, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BRSP#NYSE">BRSP</a>), up 1.4% and Orchid Island Capital, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ORC#NYSE">ORC</a>) up 1.2%. 
Read Now: <a href="https://www.benzinga.com/money/mortgages/find">Purchase and Refinance Mortgage Finder</a>

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iShares Trust Barclays 20+ Year Treasury Bond Fund

US Mortgage Applications Surge As Rates Dip: Is The Industry Moving Out Of The Woods? Plus: Stocks, ETFs To Watch

The economy has been fairly resilient through the <a href="https://www.benzinga.com/analyst-ratings/analyst-color/23/03/31410189/as-fed-decision-looms-larry-summers-makes-the-case-for-25-basis-point-hike-and-appl">current rate-tightening cycle of the Federal Reserve,</a> although the housing sector hasn&rsquo;t been among the ones showing strength.
What Happened: A weekly data released early Wednesday confirmed the sector may be turning the corner.
Mortgage application volume rose 3% week-over-week in the week ended March 17, data released by the Mortgage Bankers&rsquo; Association showed. This followed a 5% increase in the previous week and a steeper 7.4% climb in the week ended March 3.
See Also: <a href="https://www.benzinga.com/money/best-home-builder-stocks">Best Home Builder Stocks</a>
The purchase index rose 2% week-over-week but was 36% lower than a year ago.
The increase in mortgage application volume was attributed to the drop in Treasury yields amid the <a href="https://www.benzinga.com/analyst-ratings/analyst-color/23/03/31450913/wharton-professor-jeremy-siegel-says-banking-crisis-a-silver-lining-why-he-expects-">banking crisis. </a>Mortgage rates fell for a second week, with the 30-gear fixed rate mortgage rate dropping to a one-month low of 6.48%.
Despite the pullback, the spread between the 30-year fixed rate and the 10-year Treasury remained wide at 300 basis points compared to the typical spread of 180 basis points due to increasing mortgage-backed security volatility, said Joel Kan, MBA&rsquo;s Deputy Chief Economist.
&ldquo;Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels.&rdquo;
More insight into the housing market could be gleaned when homebuilder KB Home (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/kbh#NYSE">KBH</a>) reports Wednesday after the close.
Price Action: In premarket trading, the iShares Mortgage Real Estate Capped ETF (BATS: <a class="ticker" href="https://www.benzinga.com/stock/rem#BATS">REM</a>) rose 1.33%, to $21.35, according to <a href="https://benzinga.grsm.io/register174">Benzinga Pro data.</a>
&nbsp;

News

Mortgage Applications Volume Rise For 3rd Week As Rates Fall To 1-Month Low Amid Banking Crisis

Over a 10-year period, equity real estate investment trusts (REITs) tend to have a higher annualized return than mortgage REITs, which have an average return of 8.2%. Meanwhile, mortgage real estate investment trusts tend to have a higher five-year average dividend yield of 10.8%, which is much <a href="https://www.benzinga.com/trading-ideas/long-ideas/22/10/29386435/looking-for-double-digit-returns-3-mortgage-reits-you-can-buy-for-less-than-theyre-worth">higher than equity REITs</a>.
<img alt="" src="https://www.benzinga.com/files/u1108081/screen_shot_2022-10-31_at_2.38.42_pm.png" style="height:378px; width:539px" />
The main difference between an equity REIT and a mortgage REIT is that equity REITs own the real estate and earn income through rents, while mortgage REITs lend money to real estate owners and collect the interest on those loans.
The Invesco KBW Premium Yield Equity REIT ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/kbwy#NASDAQ">KBWY</a>) which is constructed using a dividend yield-weighted methodology that seeks to reflect the performance of approximately 24 to 40 small- and mid-cap equity REITs in the United States, is down nearly 20% year-to-date. While its mortgage REIT ETF counterpart, iShares Trust iShares Mortgage Real Estate ETF (BATS: <a class="ticker" href="https://www.benzinga.com/stock/rem#BATS">REM</a>) is down over 31% year-to-date, and has 50 holdings diversified evenly across small, mid, and large-cap equities, also allocating a little less than half of its assets to the financial services sector.
See Also:&nbsp;<a href="https://www.benzinga.com/trading-ideas/long-ideas/22/10/29467044/these-2-mortgage-reits-have-yields-above-10-and-have-gone-unnoticed-trading-at-a-steep-d">These 2 Mortgage REITs Have Yields Above 10% And Have Gone Unnoticed Trading At A Steep Discount</a>
See how this mortgage REIT stacks up against an equity REIT.
Dynex Capital Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/dx#NYSE">DX</a>) is offering a dividend yield of 12.99% or $1.56 per share annually, conducting monthly payments, with an infrequent track record of increasing its dividend payments. Dynex Capital is a mortgage real estate investment trust and primarily invests in residential and commercial mortgage-backed securities.
In the third quarter, Dynex Capital saw its book value decrease by $2.56 per share to $14.23 per share as of Sept. 30, 2022. Although realized gains on interest rate hedges included in GAAP results were $149.6 million for the third quarter and $486&nbsp;million year-to-date.
&ldquo;While we experienced a decline in book value during the quarter related to this volatility and spread widening, our liquidity remains solid. We are prepared and well-positioned to benefit when the markets find equilibrium,&rdquo; stated Byron L. Boston, CEO of Dynex Capital.
Apple Hospitality REIT Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/aple#NYSE">APLE</a>) is offering a dividend yield of 5.62% or 96 cents per share annually, through monthly payments, with a track record of increasing its dividends once in the past year. Apple Hospitality is a real estate investment trust that invests in income-producing real estate, primarily in the lodging sector&nbsp;in the United States. Apple Hospitality owns one of the largest and most diverse portfolios of upscale, rooms-focused hotels with a portfolio consisting of 220 hotels with approximately 29,000 guest rooms located in 87 markets throughout 37 states.
Justin Knight, CEO of Apple Hospitality in the second quarter press release mentioned, &ldquo;We remain confident in the resiliency of travel, the merits of our underlying strategy and our ability to continue to drive strong total returns for our shareholders over time.&rdquo; The firm increased its monthly cash dividend to $0.08 per share for November 2022.
Apple Hospitality&rsquo;s hotels include 96 hotels under the banner name Marriott International Inc. (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/mar#NASDAQ">MAR</a>), 119 branded hotels under Hilton Worldwide Holdings Inc. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/hlt#NYSE">HLT</a>), four Hyatt branded hotels <a href="https://www.benzinga.com/news/earnings/22/10/29416648/hilton-worldwide-issues-q4-outlook-lifts-fy22-earnings-guidance-above-expectations">and one independent hotel</a>.
Now Check Out: <a href="https://www.benzinga.com/money/real-estate-investment">Benzinga&#39;s Complete Guiden To Real Estate Investing&nbsp;</a>

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These 2 REITs Have Soaring Yields: Mortgage REITs Versus Equity REITs

The iShares Trust iShares Mortgage Real Estate ETF (BATS: <a class="ticker" href="https://www.benzinga.com/stock/rem#BATS">REM</a>) has 50 holdings diversified evenly across small, mid, and large-cap equities, also allocating&nbsp;less than half of its assets to the financial services sector. The iShares Mortgage ETF is down nearly 31% year-to-date, as rising mortgage rates cratered the market price <a href="https://www.benzinga.com/trading-ideas/long-ideas/22/10/29364669/2-mortgage-reits-with-soaring-yields-and-short-term-loans-that-perform-better-with-risin">of real estate firms</a>.
Mortgage real estate investment trusts (REITs) tout the highest average five-year dividend yield of 10.8%, out of any REIT sector. Which is why you may want to invest in a <a href="https://www.benzinga.com/money/mortgage-lenders-no-tax-returns/">mortgage</a> REIT (mREIT) with a yield higher than the average.
Since both of these <a href="https://www.benzinga.com/money/mortgage-lenders-no-tax-returns/">mortgage</a> REITs are trading at a discount to their book value, it may be an interesting swing trade to buy a beat-down real estate investment trust.
Also Read:&nbsp;<a href="https://www.benzinga.com/trading-ideas/long-ideas/22/10/29386435/looking-for-double-digit-returns-3-mortgage-reits-you-can-buy-for-less-than-theyre-worth">Looking For Double-Digit Returns? 3 Mortgage REITs You Can Buy For Less Than They&#39;re Worth &mdash; By This Measure</a>
PennyMac Mortgage Investment Trust (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pmt#NYSE">PMT</a>) is offering a dividend yield of 13.50% or $1.88 per share annually, using quarterly payments, with an infrequent track record of increasing its dividend payments. PennyMac Mortgage is a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets.
PennyMac&rsquo;s Chairman and CEO David Spector commented in the third quarter press release that, &ldquo;Meaningful income contributions from both of our production and servicing segments led to an annualized return on equity of 16% and growth in book value per share, despite mortgage rates climbing to their highest levels in more than a decade.&rdquo; PennyMac&rsquo;s book value per share increased to $68.26 per share from $65.38 per share on June 30, 2022.
Chimera Investment Corporation (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/cim#NYSE">CIM</a>) is offering a dividend yield of 13.59% or 92 cents per share annually, through quarterly payments, with an inconsistent track record of increasing its dividends. Chimera Investment is a real estate investment trust engaged in investing in a portfolio of mortgage assets on a leveraged basis.
Since its inception, Chimera has distributed over $5.8 billion to its shareholders and has total assets of over $14 billion as of June 30, 2022. Chimera has a GAAP book value of $8.82 per share as <a href="https://www.benzinga.com/markets/penny-stocks/22/10/29270593/from-a-to-z-all-the-reits-hitting-new-52-week-lows-this-week">of June 30, 2022</a>.

These 2 Mortgage REITs Have Yields Above 10% And Have Gone Unnoticed Trading At A Steep Discount

With the Federal Reserve having lowered interest rates three times this year, it&#39;s easy to understand investors&#39; affinity for longer duration Treasuries and the related exchange traded funds.
ETFs with exposure to long-dated U.S. government debt are rewarding investors this year. For example, the iShares 20+ Year Treasury Bond ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/tlt#NASDAQ">TLT</a>), which has an effective duration of 18.10 years, is higher by almost 17% this year. In turn, investors have lavished $7.85 billion in new asset upon TLT, a total surpassed by just eight other ETFs this year.
Indeed, these are <a href="https://www.benzinga.com/analyst-ratings/analyst-color/19/12/14934802/bond-flow-aid-the-ascents-of-etf-goliaths">go-go days for bond ETFs</a>, but investors may want to consider a Treasuries alternative in the form of mortgage real estate investment trusts or mREITs.
<h3>Why It&#39;s Important</h3>
That asset class is accessible via ETFs, including the iShares Mortgage Real Estate ETF (CBOE: REM). The $1.38 billion REM is outpacing TLT this year about 100 basis points while offering up a significantly higher yield at 8.10% on a 30-day SEC basis, <a href="https://www.ishares.com/us/products/239543/?referrer=tickerSearch">according to issuer data</a>.
Some professional investors believe REM can extend its outperformance of long-dated government bonds in 2020.
&ldquo;We believe the upside opportunity in this product remains significant should the yield curve steepen for a sustained period,&rdquo; <a href="https://www.rareviewcapital.com/">Rareview Macro founder Neil Azous</a> said in a note out Monday.
Azous recommended a long position in REM in February. The fund has posted a double-digit gain since that call.
<h3>What&#39;s Next</h3>
&ldquo;While waiting, long REM is a positive carry alternative to 2-10&rsquo;s or 5-30&rsquo;s Steepeners, which have a negative carry. For example, the 12-month yield is 8.42%,&rdquo; Azous said.
REM allocates over 29% of its combined weight to Annaly Capital Management (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/nly#NASDAQ">NLY</a>) and AGNC Investment REIT (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/agnc#NASDAQ">AGNC</a>).
Azous is bullish on REM heading into 2020.
&ldquo;In addition, the ETF&rsquo;s holdings of credit-oriented mortgage REITs have benefited it this year as high yield credit has returned a ~12% gain alongside broad equity appreciation,&rdquo; the Rareview Macro founder said. &ldquo;We will likely carry this position into the New Year.&rdquo;
Related Links:
<a href="https://www.benzinga.com/general/biotech/19/12/14951009/theres-a-really-good-chance-you-missed-one-of-the-years-best-etfs">Don&#39;t Miss Out On This ETF Again</a>
<a href="https://www.benzinga.com/trading-ideas/long-ideas/19/12/14951007/a-virtuous-avenue-to-smaller-stocks">Get ESG In A Small-Cap Wrapper</a>

Specialty ETFs

AGNC

Why Investors Should Consider Mortgage REITs Instead Of Long-Dated Treasuries

Mortgage real estate investment trusts, also known as mREITs, are an income-generating asset class that has been made more accessible to a broader swath of investors thanks to exchange traded funds.
The largest mREIT ETFs and the underlying securities themselves are high-yield assets, making them sensitive to changes in interest rates, but amid a more sanguine rate outlook, mREIT ETFs could be worth considering again.
<h3>What Happened</h3>
The iShares Mortgage Real Estate ETF (CBOE: REM) and the VanEck Vectors Mortgage REIT Income ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mort#NYSE">MORT</a>) are the leaders among mREIT ETFs with $1.24 billion and $161.60 million, respectively, in assets under management. REM&nbsp;is up about 9 percent this year.
&ldquo;Simply, an mREIT is a leveraged investment on the shape of the yield curve &ndash; that is, they borrow short and invest long,&rdquo; said Rareview Macro founder Neil Azous <a href="https://www.rareviewcapital.com/mortgage-reits-how-you-can-leverage-the-path-to-lower-interest-rates/">in a recent note</a>. &ldquo;Because the positive spread is 1.25-1.50%, even with the inverted/flat yield curve currently, using ~7 times average leverage, the carry is upwards of 10%. When the yield curve steepens, the net spread that mREIT&rsquo;s earn increases.&rdquo;
<h3>Why It&#39;s Important</h3>
REM and MORT have an average 30-day SEC yield of 9.36 percent, so mREITs are used as hedges against rising rates, it&#39;s not surprising MORT and REM lost an average of 3.75 percent in 2018 when the Federal Reserve raised interest rates four times.
This year, however, it&#39;s possible the Fed doesn&#39;t raise rates at all, potentially increasing the allure of mREITs and the aforementioned ETFs.
&ldquo;Firstly, when mREIT&rsquo;s recognize that the Federal Reserve hiking cycle is over and the next move is an interest rate cut, they will likely lift portions of their interest rate hedges and run a positive duration gap &ndash; meaning they will be net long mortgage securities at ~7 times leverage,&rdquo; said Azous. &ldquo;This will allow them to potentially reap the full potential of lower interest rates.&rdquo;
<h3>What&#39;s Next</h3>
Should it become apparent that the Fed is considering cutting rates, MORT and REM likely benefit under that scenario, too.
&ldquo;Secondly, when the Federal Reserve begins lowering interest rates, an mREIT&rsquo;s cost of leverage will reset lower, which increases its net income spread,&rdquo; said Azous. &ldquo;Over time, this will likely lead to a rise in dividends and contribute to an increase in book values. Collectively, we believe that the potential for mREIT&rsquo;s to generate a high amount of total return over the next year is significant. For a product with a historical volatility of ~13, the risk-adjusted return potential is one of the best in the public markets.&rdquo;
Related Links:
<a href="https://www.benzinga.com/analyst-ratings/analyst-color/19/03/13339563/a-recent-upgrade-for-this-growth-sector">An Upgrade For This Growth Sector </a>
<a href="https://www.benzinga.com/trading-ideas/long-ideas/19/03/13332209/a-new-force-among-esg-etfs">A Hot New ESG ETF </a>

MORT

The Marvelous Mortgage REIT ETFs

Wall Street was abuzz Wednesday as traders digested the top picks from some of the country&#39;s most prominent money managers.

	The <a href="http://www.sohnconference.org/new-york/">Ira Sohn New York</a> Conference had market players and media alike flocking to the city&#39;s David Geffen Hall in the Lincoln Center for an annual meeting of some of the most esteemed investment minds.

	At the heart of the event is The Sohn Conference Foundation, which &quot;is dedicated to supporting innovative initiatives to cure and treat pediatric cancer.&quot;

	New York City is just one stop on the map for the Foundation&#39;s efforts. Visit <a href="http://www.sohnconference.org/">www.sohnconference.org</a> to see all the events, including conferences in Hong Kong, India, Tel Aviv and London.

	As the event can be quite the whirlwind of market-moving investment and trading ideas, Benzinga has wrapped up some of the most interesting ideas and market reactions.
<ul>
<li>
		Larry Robins, Glenview Capital - Refrained from discussing what he called &quot;anything actionable,&quot; and instead highlighted some of his already-known favorite long picks: CBS Corporation (NYSE: <a class="ticker" href="/stock/cbs#NYSE">CBS</a>), Flextronics International Ltd. (NASDAQ: <a class="ticker" href="/stock/flex#NASDAQ">FLEX</a>), Laboratory Corp. of America Holdings (NYSE: <a class="ticker" href="/stock/lh#NYSE">LH</a>), Thermo Fisher Scientific Inc. (NYSE: <a class="ticker" href="/stock/tmo#NYSE">TMO</a>), AbbVie Inc (NYSE: <a class="ticker" href="/stock/abbv#NYSE">ABBV</a>), Brookdale Senior Living, Inc. (NYSE: <a class="ticker" href="/stock/bkd#NYSE">BKD</a>) and Anthem Inc (NYSE: <a class="ticker" href="/stock/antm#NYSE">ANTM</a>) amid its deal with CIGNA Corporation (NYSE: <a class="ticker" href="/stock/ci#NYSE">CI</a>).</li>
<li>
		Carson Block, Muddy Waters - A known and often times referred to as &quot;infamous&quot; short seller, Block discussed a downside idea in Bank Of The Ozarks Inc (NASDAQ: <a class="ticker" href="/stock/ozrk#NASDAQ">OZRK</a>). He highlighted the company&#39;s &quot;extreme concentration&quot; on real estate lending and suggested it would need to raise capital this year and next.</li>
<li>
		John Khoury, Long Pond Capital - Hyatt Hotels Corporation (NYSE: <a class="ticker" href="/stock/h#NYSE">H</a>) was the sole idea Khoury discussed, calling the company &quot;a high quality name in the hotel sector&quot; -- a sector which he described as &quot;out of favor as an asset class.&quot; Shares of Hyatt rallied about 3 percent amid Khoury&#39;s call.</li>
<li>
		Jeffrey Smith, Starboard - Smith talked long ideas in Depomed Inc (NASDAQ: <a class="ticker" href="/stock/depo#NASDAQ">DEPO</a>) and WestRock Co (NYSE: <a class="ticker" href="/stock/wrk#NYSE">WRK</a>). He suggested Westrock shares could hit $71 by the end of 2017; the stock closed Wednesday down 1.5 percent at $38.95.</li>
<li>
		Jeffrey Gundlach, Doubleline Capital - Gundlach stayed broader, but did offer a couple ETF picks: iShares FTSE NAREIT Mortgage ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) as a long and Utilities SPDR ETF (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>) as a short.</li>
<li>
		David Einhorn, Greenlight Capital - Consistently one of the headliners of the Sohn event in years past, Einhorn outlined a concerning picture for Caterpillar Inc. (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) and a rosier one for General Motors Company (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>).</li>
<li>
		Jim Chanos, Kynikos - Chanos best comments came out not on the main Sohn stage, but at a behind-the-scenes interview with a team of CNBC anchors. Chanos disclosed he is still shorting shares of Alibaba Group Holding Ltd (NYSE: <a class="ticker" href="/stock/baba#NYSE">BABA</a>) and considered the bear case in shares of Cheniere Energy, Inc. (NYSE: <a class="ticker" href="/stock/lng#NYSE">LNG</a>).</li>
</ul>

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A Quick-And-Easy Guide To All The Calls At Ira Sohn 2016

DoubleLine's Jeff Gundlach Says Mortgage REITs Have Stable PE

Among the asset classes seen as vulnerable to rising rates are high-yielding mortgage real estate investment trusts, or mREITs, including those held by exchange-traded funds such as the iShares Mortgage Real Estate Capped ETF (iShares FTSE NAREIT Mortg.REITIn Fd(ETF) (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>)) and the Market Vectors Mortgage REIT Income ETF (Market Vectors ETF Trust (NYSE: <a class="ticker" href="/stock/mort#NYSE">MORT</a>)).
During the go-go days of the Federal Reserve&#39;s quantitative easing program, MORT and REM were favored destinations by income investors. These days, an average trailing 12-month dividend yield on the ETFs of about 11 percent tempts, but the sensitivity of MORT and REM to rising rates cannot be overlooked.
&ldquo;Mortgage REITs have exhibited a negative correlation to interest rates changes, especially if the yield curve flattens. Many agencies use leverage to capitalize on the arbitrage spread between short- and long-term interest rates, so companies can still make money in a rising rate environment, as long as long-term rates rise faster than the short-term rate or if the yield curve steepens,&rdquo; according to <a href="http://www.etftrends.com/2016/01/tempting-mortgage-reit-etfs/">ETF Trends</a>.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/general/education/16/01/6141497/differences-between-single-family-and-multifamily-home-investments">Differences Between Single Family And Multifamily Home Investments</a></bzrelatedlink>
Over the past year, MORT and REM are down an average of 16.6 percent, but although 10-year Treasury yields are off 11.1 percent over the past month, MORT and REM are lower by an average of 9.8 percent. The two mREIT ETFs each hit 52-week lows last Friday.
<h3>Recent Performance</h3>
&ldquo;Interest rates and sentiment regarding rate movements historically have had a major impact on mortgage REITs (investor uncertainty about interest rates prompted mortgage REITs&#39; 2013 sell-off),&rdquo; said Morningstar <a href="http://news.morningstar.com/articlenet/article.aspx?id=736207">in a recent note</a>.
 &ldquo;At the same time, rising rates are not necessarily all bad for mortgage REITs. Higher short-term rates certainly increase funding costs, but the effect could be mitigated somewhat if long-term rates rise even faster, resulting in a steeper yield curve and a greater spread. (While many mortgage REITs hold fixed-rate residential mortgages and mortgage-backed securities, some hold variable-rate commercial property loans. As such, REM is exposed both to fixed-rate and floating-rate securities.)&rdquo;
<h3>REM: Allocations And Holdings</h3>
The $745.3 million REM holds 37 stocks, though a substantial portion of the ETF&#39;s weight is allocated to Annaly Capital Management, Inc. (NYSE: <a class="ticker" href="/stock/nly#NYSE">NLY</a>) and American Capital Agency Corp. (NASDAQ: <a class="ticker" href="/stock/agnc#NASDAQ">AGNC</a>). Those stocks combine for 27.3 percent of the ETF&#39;s weight. Those two stocks combine for over 24 percent of MORT&#39;s weight.
<h3>Rates And mREITs</h3>
Rising short-term interest rates are particularly problematic for mREITs because these companies depend on short-term loans. However, some analysts see favorable risk/reward with mREITs because some of the names held by MORT and REM now trade at steep discounts to book value. Industry-wide, mREITs trade at a 25 percent discount to book value, <a href="http://blogs.barrons.com/incomeinvesting/2016/01/05/even-as-rates-rise-mortgage-reits-attractive-with-15-yields/">according to Credit Suisse</a>.
&ldquo;Mortgage REITs&#39; future is uncertain. The Fed no longer is a regular buyer of MBS, and commercial banks largely have fulfilled their government-imposed requirements to add high-quality assets to their balance sheets, reducing MBS demand and causing higher rates for MBS borrowers. Several factors could boost MBS supply: If mortgage credit loosens, if the housing market improves meaningfully, if nonagency-to-agency refinancing goes up, or if banks revert to securitizing more loans instead of placing them on their balance sheets. While a greater MBS supply could have an impact on spreads, the MBS marketplace is far more stable now than it was in the past,&rdquo; said Morningstar.
Image Credit: <a href="https://pixabay.com/en/house-insurance-protect-home-care-419058/">Public Domain</a>

Short Ideas

Intraday Update

Enticing Yields And Risks With Mortgage REIT ETFs

For all the talk of the Federal Reserve raising interest rates, which could happen as soon as next month, an important point as it pertains to an array of income-generating, rate-sensitive asset classes is sometimes overlooked. Even when the Fed does start hiking rates, it is going to take a while before rates resemble &ldquo;normal,&rdquo; whatever &ldquo;normal&rdquo; may be after years of a near zero interest rate policy (ZIRP).

	Still, even the specter of modest increases in borrowing costs has weighed on some popular income-related exchange traded funds this year. ETFs holding real estate investment trusts (REITs) <a href="http://www.benzinga.com/trading-ideas/long-ideas/15/08/5743247/know-the-important-differences-between-reit-etfs">have endured significant redemptions</a> as investors have fretted over how changes in Fed policy will affect this once beloved income destination.&nbsp;

	Mortgage REIT, or mREIT ETFs are facing issues of their own. The iShares Mortgage Real Estate Capped ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) and the Market Vectors Mortgage REIT Income ETF (NYSE: <a class="ticker" href="/stock/mort#NYSE">MORT</a>) are the well-known funds in the mREIT ETF space and thanks to the Fed&#39;s ZIRP, these ETFs have garnered notable followings for one primary reason: Jaw-dropping yields.

	The $1.06 billion REM has a trailing 12-month yield of almost 14 percent while the $113.7 million MORT has a 30-day SEC yield of nearly 15.3 percent, <a href="http://www.vaneck.com/funds/MORT.aspx">according to Market Vectors data</a>.

	While those yields are far higher than what investors will find on traditional REIT ETFs, mREIT funds sensitive to interest rate and regulatory changes. History proves as much.

	&ldquo;We got a peek into REM&rsquo;s sensitivity to rising rates when it fell 9 percent in June as the two-year&nbsp;yield rose 6 percent. It also lost 12 percent in May 2013 when the two-year rose 41 percent. And now this summer, REM is starting to show cracks as it&#39;s down 5 percent since Memorial Day, while bleeding $80 million in cash,&rdquo; reports Eric Balchunas for <a href="http://www.bloomberg.com/news/articles/2015-08-07/interest-rates-are-already-hurting-mortgage-reit-etfs">Bloomberg</a>.&nbsp;

	And there is this: Ten-year Treasury yields have climbed 11.7 percent over the past six months, a move that has contributed to an average loss of 8.6 percent for MORT and REM over the same period. Interestingly, the outflows from mREIT ETFs this year have not been overwhelming. In fact, MORT has added nearly $8.2 million in new assets while REM has lost just $42.2 million, an outflow total that is modest when compared to some of the big-name traditional REIT ETFs.

	The problem for MORT and REM is that one of the cornerstones of mREITs&#39; income-generating capabilities is low short-term interest rates, the very rates likely to rise when the Fed shifts course. So when short-term rates rise, MORT and REM could be pinched leaving income investors to feel the pain.

No Free Lunch: Tempting Yields And Lots Of Rate Risk With These ETFs

On July 7, Wells Fargo analyst Joel Houck published a research note, &quot;Sell-off Overdone; Upgrading mREITs to Overweight.&quot;

	Most investors are attracted to the mortgage REIT (mREIT) sector because of the high dividend yields; however, there are many variables which can lead to losses in book value per share (BVPS), which in turn can lower share prices.

	The Wells Fargo rating system includes a &quot;V&quot; for volatility to help alert investors the there is a high potential for price volatility.

	&quot;A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility.&quot;

	Notably all seven of the mREITs which were upgraded by Houck from Market Perform (2) to Outperform (1) also carry the &quot;V&quot; designation, including four trading up ~3 percent:
<ul>
<li>
		American Capital Agency (NASDAQ: <a class="ticker" href="/stock/agnc#NASDAQ">AGNC</a>) $6.8 billion cap, 12.4 percent yield</li>
<li>
		CYS Investments (NYSE: <a class="ticker" href="/stock/cys#NYSE">CYS</a>) $1.3 billion cap, 13.75 percent</li>
<li>
		AG Mortgage Investments (NYSE: <a class="ticker" href="/stock/mitt#NYSE">MITT</a>) $516 million cap, 13.2 percent yield</li>
<li>
		Annaly Capital Management (NYSE: <a class="ticker" href="/stock/nly#NYSE">NLY</a>) $9.2 billion cap, 12.4 percent yield</li>
</ul>

	High mREIT dividend yields are achieved by the use of leverage being applied to interest rate spreads. Therefore, small changes in rates can have a large impact on mREIT payouts and valuations.
<h3>
	Tale Of The Tape - 2015 YTD</h3>

	Despite today&#39;s 3 percent gains, the chart below illustrates how these four mREIT shares are still in the red for the year.

	<img alt="wfc_-_ychart_mreit_upgrades_july_7.jpg" height="398" src="/files/u80916/wfc_-_ychart_mreit_upgrades_july_7.jpg" width="500" />

	Notably, declines in American Agency and Annaly Capital share prices have completely wiped out the dividend gains YTD, a &quot;real world&quot; illustration of mREIT volatility.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/15/06/5635332/2-small-cap-mreits-3-top-high-yield-picks-from-credit-su">2 Small-Cap mREITs &amp; 3 Top High-Yield Picks From Credit Suisse</a></bzrelatedlink>
<h3>
	Prepayment Risks Have Lessened</h3>

	One of the biggest concerns for mREIT investors in a flat to lower rate environment is the prepayment of higher rate mortgages by homeowner refinancing at lower rates.

	<img alt="wfc_-_mreit_500_pix_coupon_rates_0.jpg" height="427" src="/files/u80916/wfc_-_mreit_500_pix_coupon_rates_0.jpg" width="500" />

	Houck pointed out how that risk has been mitigated by a shift in portfolio composition from 2008 to 2015, resulting from the &quot;refi boom&quot; in prior years.
<h3>
	Wells Fargo - BVPS Declines Priced In Shares</h3>

	<img alt="wfc_-_mreit_bv_table_july_7.jpg" height="475" src="/files/u80916/wfc_-_mreit_bv_table_july_7.jpg" width="635" />

	The table above shows how mREIT book value estimates have already been lowered sequentially during 2Q15, compared with Q1 estimates.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/15/06/5615007/wunderlich-securities-mortgage-reit-update-big-moves-sin">Wunderlich Mortgage REIT Update: 5 Big Moves Since April</a></bzrelatedlink>
<h3>
	Wells Fargo - mREITs Favorable Risk Reward</h3>

	The Wells Fargo mREIT thesis &quot;&hellip;is largely predicated on a gradual tightening cycle, starting with a 25 basis point lift-off in September, and a flattening bias to the yield curve.&quot;

	Wells Fargo looked at a &quot;&hellip;total return potential under adverse (10% price/book valuation haircut) and favorable scenarios (10% appreciation), assuming stable dividends based on 2Q15 levels. [Wells Fargo estimated] that these scenarios would yield total returns of 2.6% and 24.6% for the mREIT space in aggregate.&quot;

	Houck also noted &quot;&hellip;lower leverage and narrower duration gaps since the taper tantrum, along with dividend cuts in recent quarters&hellip; [and] relatively stable payout levels should contribute to valuation stability.&quot;
<h3>
	Investor Takeaway</h3>

	In addition to the seven mREIT upgrades, Wells Fargo retained Outperform ratings on three additional mREITs under its coverage.

	Given the Wells Fargo broad mREIT sector upgrade to Overweight, another way for investors to take advantage of this valuation call would be through sector ETFs.

	<img alt="wfc_-_ychart_mreit_etfs_july_7.jpg" height="486" src="/files/u80916/wfc_-_ychart_mreit_etfs_july_7.jpg" width="607" />

	The Market Vectors Mortgage REIT ETF (NYSEMKT: MORT) and iShares Mortgage Real Estate Capped ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) provide investors broad mREIT sector exposure, without having to research individual stocks and analyze a variety of complex strategies.

	The MORT ETF and REM ETF are currently paying dividends yielding 9.4 percent and 12.5 percent, respectively.

MITT

4 Top-Performing Mortgage REITs Rose Sharply On This Sector Upgrade

The yield on the 10-year U.S. Treasury bond rose by over 2 percent last Friday, December 5 after the November employment report came in better-than-expected. The news was generally perceived as positive for the economy, and appears to have pushed investors to sell government bonds, sending yields higher.

	The main driver of this selling activity was the thought that the Fed will be forced to raise its benchmark interest rate sooner rather than later. If this is the case, it will likely send bond prices lower.

	While banks should stand to benefit from an increased rate hike, <a href="http://www.benzinga.com/topic/REITs">REITs</a> (real estate investment trusts) could be on the other side of the eight ball. An increase in the interest rate of &ldquo;risk-free&rdquo; U.S. government bonds makes the interest rate paid by riskier assets such as REITs less attractive.

	Most investors will purchases REITs solely for their above-average dividend, and as the Fed raises rates, the spread between Treasuries and REITs lessens (and makes the latter less appealing).

	Highlighted below are a number of REIT ETFs that initially fell on the jobs report, however the move may be a short-term phenomenon.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/etfs/specialty-etfs/14/12/5054463/a-look-at-4-etfs-from-the-4-least-corrupt-countries">A Look At 4 ETFs From The 4 &quot;Least Corrupt&quot; Countries</a></bzrelatedlink>
<h3>
	iShares FTSE NAREIT Mortgage</h3>

	The iShares FTSE NAREIT Mortg.REITIn Fd(ETF) (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) provides exposure to the residential and commercial mortgage real estate sector. It is made up of 36 stocks.

	Top holdings include:
<ul>
<li>
		Annaly Capital Management, Inc. (NYSE: <a class="ticker" href="/stock/nly#NYSE">NLY</a>), at 16 percent.</li>
<li>
		American Capital Agency Corp. (NASDAQ: <a class="ticker" href="/stock/agnc#NASDAQ">AGNC</a>), with a 12 percent holding.</li>
<li>
		Starwood Property Trust, Inc. (NYSE: <a class="ticker" href="/stock/stwd#NYSE">STWD</a>), coming in at 8 percent.</li>
</ul>

	This ETF is up 9 percent year-to-date and down 2 percent over the last six months. It sports an expense ratio of 0.48 percent.
<h3>
	SPDR Dow Jones REIT</h3>

	The SPDR Dow Jones REIT ETF (NYSE: <a class="ticker" href="/stock/rwr#NYSE">RWR</a>) tracks 94 companies that are invested primarily in the real estate sector in the U.S.

	Top holdings include:
<ul>
<li>
		Simon Property Group Inc (NYSE: <a class="ticker" href="/stock/spg#NYSE">SPG</a>), with a 10 percent holding.</li>
<li>
		Public Storage (NYSE: <a class="ticker" href="/stock/psa#NYSE">PSA</a>), making up 5 percent of the ETF.</li>
<li>
		Equity Residential (NYSE: <a class="ticker" href="/stock/eqr#NYSE">EQR</a>), coming in at 5 percent.</li>
</ul>

	The ETF is up 27 percent year-to-date and 6 percent over the last six months, and has an expense ratio of 0.25 percent.
<h3>
	Vanguard REIT</h3>

	The Vanguard REIT Index Fund (NYSE: <a class="ticker" href="/stock/vnq#NYSE">VNQ</a>) consists of 138 stocks issued by real estate investment trusts. In terms of sector diversification, retail REITs make up 26 percent and residential REITs come in at 16 percent of the portfolio.

	The top three holdings are identical to the SPDR Dow Jones REIT ETF with a slightly varied weighting.

	The ETF is one of the top-performing REIT ETFs in the market, with a gain of 26 percent year-to-date and 5 percent over the last six months. It boasts an expense ratio of 0.10 percent.

STWD

The Jobs Number Could Signal Trouble For This Group Of ETFs

REIT ETFs that limped into the end of 2013 are looking as though the sector will finish out 2014 in a much different state, as investors look for high-yield options that perform well in low interest rate environments.

	<a href="www.benzinga.com/topic/REIT">REITs</a> are one of the few investment choices that investors can turn to when looking for above-average income. Falling rates allow REITs to refinance existing investments at lower rates, in turn increasing their margins.

	Year to date, the Vanguard REIT ETF (NYSE: <a class="ticker" href="/stock/vnq#NYSE">VNQ</a>), the largest REIT ETF, is up 23 percent. Its fellow ETF, the SPDR S&amp;P 500 ETF Trust (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>), is up 10 percent. However, for 2013, VNQ was down 3 percent versus SPY, which was up 26 percent.

	Highlighted below are three REIT ETFs and one mortgage REIT ETF that are leading the charge in the sector this year.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/real-estate/reit/14/10/4947951/3-reit-etfs-holding-up-despite-market-storm-etf-news-and-commentary">3 REIT ETFs Holding Up Despite Market Storm</a></bzrelatedlink>
<h3>
	iShares Cohen &amp; Steers Realty Maj. (ETF)</h3>

	The iShares Cohen &amp; Steers Realty Maj. (ETF) (NYSE: <a class="ticker" href="/stock/icf#NYSE">ICF</a>) provides exposure to large real estate companies that are fixtures within their sector. The ETF is comprised of 31 stocks with its top holdings being:
<li>
		Simon Property Group Inc&nbsp;at 7.9 percent</li>
<li>
		Public Storage&nbsp;at 6.9 percent</li>
<li>
		Equity Residential&nbsp;making up 6.1 percent of the portfolio.</li>

	The top five holdings account for 27 percent of the total allocation, taking away from some of the diversification that an ETF offers. The ETF is up 18 percent over the last 12 months and up 10 percent over the last six months. An expense ratio of 0.35 percent puts ICF in the middle of the road in comparison with its competitors.
<h3>
	Vanguard REIT ETF</h3>

	VNQ consists of 138 large real estate investment trusts. In terms of sector diversification, retail REITs account for 26 percent, and residential REITs come in at 16 percent.

	The individual top three holdings are identical to ICF with different weightings:
<li>
		Simon Property Group has an 8.7 percent holding</li>
<li>
		Public Storage is at 4.1 percent</li>
<li>
		Equity Residential accounts for 3.6 percent.</li>

	VNQ is up 14 percent over the last 12 months and 9 percent over the last six months. The REIT ETF boasts a low expense ratio of 0.10 percent.
<h3>
	Index IQ ETF Trust</h3>

	The Index IQ ETF Trust (NYSE: <a class="ticker" href="/stock/roof#NYSE">ROOF</a>) provides investors the means to track the overall performance of the small capitalization real estate market. ROOF tracks 61 securities and is a well-distributed ETF with its top 30 holdings ranging from 3.7 percent to 1.7 percent.

	The top three holdings of the ETF include:
<li>
		Sunstone Hotel Investors Inc&nbsp;with a 3.7 percent holding</li>
<li>
		Cubesmart&nbsp;at 3.3 percent</li>
<li>
		DCT Industrial Trust Inc at 3.3 percent</li>

	ROOF is up 11 percent over the last 12 months and 7 percent over the last six months. The expense ratio comes in at 0.69 percent, making it one of the more expensive REIT ETFs on the market.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/etfs/specialty-etfs/14/10/4963984/etfs-adding-alibaba">ETFs Adding Alibaba</a></bzrelatedlink>
<h3>
	iShares Mortgage Real Estate Capped ETF</h3>

	The iShares Mortgage Real Estate Capped ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) provides exposure to the residential and commercial mortgage real estate sector. It is made up of 36 stocks.

	Top holdings for REM:
<li>
		Annaly Capital Management, Inc.&nbsp;making up 15.6 percent</li>
<li>
		American Capital Agency Corp with a 11.7 percent holding</li>
<li>
		Starwood Property Trust, Inc.&nbsp;coming in at 7.2 percent.</li>

	REM has performed the worst out of the highlighted ETFs; it is up 3 percent over the last 12 months and down 1 percent over the last six months. The mortgage ETF has en expense ratio of 0.48 percent.

	The current low rates make the REIT sector very attractive for investors looking to add income to a portfolio or simply diversify. It is worth noting, however, that this sector is interest-rate sensitive and a rising interest rate environment could put pressure on the stocks.

iShares Trusthen & Steers Realty Majors Index Fund

ROOF

The REIT ETFs Beating The Market

Dividend season is in full effect for the majority of equity <a href="http://www.benzinga.com/topic/etfs">ETFs</a> that pay quarterly distributions. The last week of every quarter generally brings a declaration of income from the underlying basket of companies that have generated dividends over the last 90 days.

	The process can lead to confusing price action for funds with high dividend yields that appear to be decoupling from their benchmark for a single day.

	This event is known as the dividend &ldquo;ex-date,&rdquo; which is the day that the amount of the dividend is subtracted from the net asset value of the ETF. The income will then be paid in cash shortly thereafter to shareholders of record prior to that date.&nbsp;

	Related Link: <a href="http://www.benzinga.com/etfs/specialty-etfs/14/09/4870232/deutsche-awm-celebrates-3-year-anniversary-of-currency-hedged-etfs">Deutshce AWM Celebrates 3 Year Anniversary Of Currency Hedged ETFs</a>

	Not surprisingly, the ETFs that will feel the biggest change in price as a result of this income are the funds with the largest quarterly distributions, which generally includes high yield asset classes such as mortgage <a href="http://www.benzinga.com/topic/REITs">REITs</a>, <a href="http://www.benzinga.com/topic/mlp">master limited partnerships</a>, and business development companies.&nbsp;

	For example, the iShares FTSE NAREIT Mortg.REITIn Fd ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) has a 30-day SEC yield of 9.35 percent and announced a significant quarterly distribution of $0.31 per share. With the price of REM hovering near $12, this amounted to a single day impact of 2.5 percent.

	Mortgage REITs are notorious for generating high yields by borrowing short-term term debt at low rates and using the money to purchase long-term mortgage bonds. The spread between the two is generally used to determine how profitable the REIT is and how much income it will distribute to shareholders.&nbsp;

	In addition, many international dividend indexes can pay substantial income during this quarterly cycle as well.

	The iShares Asia/Pacific Dividend ETF (NYSE: <a class="ticker" href="/stock/dvya#NYSE">DVYA</a>) recently declared a distribution of $1.02 per share, which translated to single-day adjustment of more than 2 percent as well.&nbsp; This ETF tracks exposure to high quality dividend paying companies in Australia, <a href="http://www.benzinga.com/topic/Japan">Japan</a>, Hong Kong, and New Zealand.&nbsp;

	It&rsquo;s also worth noting that many international ETFs are known to distribute lumpy income streams as part of their differing fiscal years and special distributions. This can impact yield statistics over varying time frames and is in sharp contrast to the relatively smooth dividend payments of domestic ETFs.

	ETF investors should always keep in mind that dividends need to be calculated back into performance to track the total return of each fund.&nbsp; This will allow you to view a complete picture of the price and income components over time.

Education

Broad U.S. Equity ETFs

DVYA

As Dividend ETFs Pay Out, Expect Price Action

Real estate ETFs have been moving like a stealth bomber under the radar for the first three months of the year and continue to notch new 2014 highs. 

	The combination of stabilizing interest rates and low equity issuance has been a tailwind for publicly traded REITs that are coming off a volatile 2013.

	In addition, investors are continuing to see positive signs of increasing real estate prices that make this sector both a growth and income play moving forward.

	The largest ETF in this space is the Vanguard REIT ETF (NYSE: <a class="ticker" href="/stock/vnq#NYSE">VNQ</a>) which tracks a diversified portfolio of more than 130 publicly traded commercial and residential REITs.

	The top three holdings in VNQ include: Simon Property Group (NYSE: <a class="ticker" href="/stock/spg#NYSE">SPG</a>), Public Storage (NYSE: <a class="ticker" href="/stock/psa#NYSE">PSA</a>) and Prologis Inc (NYSE: <a class="ticker" href="/stock/pld#NYSE">PLD</a>). In addition, this ETF offers a 30-day SEC yield of 3.83 percent and charges a rock-bottom annual expense ratio of just 0.10 percent. 

	See also: <a href="http://www.benzinga.com/etfs/specialty-etfs/14/04/4447744/3-ways-etf-investors-can-profit-from-rising-rates">3 Ways ETF Investors Can Profit From Rising Rates</a>

	So far this year, VNQ has gained over 11 percent and continues to signal that the uptrend is showing no signs of slowing down. When compared to the flat returns and meager 1.80 percent yield of the SPDR S&amp;P 500 ETF (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>) over the same time frame, you can easily see how much this sector has outperformed in 2014.

	<a href="http://www.benzinga.com/etfs/sector-etfs/14/03/4413843/2-diversified-etfs-for-high-monthly-income">Aggressive income seekers</a> in the real estate sector are also likely to be drawn to mortgage REITs which have been on a strong run over the last several months as well. The iShares Mortgage REIT Capped ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>) has a 30-day SEC yield of 10.94 percent that is near the top of its class for equity-income funds. 

	Mortgage REITs tend to be highly sensitive to any swift move in bond yields because they borrow short-term money very cheap and use it to buy long-term debt. This enables them to pocket the spread on interest rates and distribute the majority of earnings to shareholders. 

	In addition, they use excessive leverage to juice their returns which in turn makes them more responsive to changes in rates.

	The biggest risk to the real estate sector moving forward is the threat of an additional push higher in interest rates which would act as a headwind for further upside. 

	However, further positive economic data coupled with additional demand in real estate prices would likely lift these ETFs even higher.

Real Estate ETFs Continue To Soar

ETF Outlook for Friday, December 20, 2013

	United States Oil ETF (NYSE: <a class="ticker" href="/stock/uso#NYSE">USO</a>)

	The price of oil spiked on the open Thursday and USO held on for a gain of 0.8 percent even though it closed well off the intraday high. The ETF hit a new two-month high as the energy commodities continue to outperform their peers.

	On the flip side was gold, which hit a new multi-year low. As long as USO can hold above the breakout level of $35/share it could in the early stages of beginning a new uptrend.

	iShares Mortgage REITs ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>)

	The mortgage REIT sector has been hit hard the last few months as the dividend cuts continue to be announced. On of the largest in the sector and one of the largest holdings of REM lowered their dividend payout again last night.

	See also: <a href="http://www.benzinga.com/news/earnings/13/12/4171544/premarket-primer-friday-december-20-housing-and-jobs-data-create-a-small#ixzz2o139z8LT" style="font-size:13px;">#PreMarket Primer: Friday, December 20: Housing And Jobs Data Create A Small Wrinkle In US Outlook</a>

	Annaly Capital Management (NYSE: <a class="ticker" href="/stock/nly#NYSE" style="font-size:13px;">NLY</a>) lowered the quarterly dividend from $0.35 to $0.30, a decrease of 14 percent. The annual yield remains extremely high at 12.2 percent and the stock trades at a massive discount to book value, however the trend of lower payouts and rising interest rates are not good signs for the sector and REM.

	iShares NASDAQ Biotech ETF (NYSE: <a class="ticker" href="/stock/ibb#NYSE">IBB</a>)

	An announcement after the closing bell yesterday that Jazz Pharmaceuticals (NASDAQ: <a class="ticker" href="/stock/jazz#NASDAQ">JAZZ</a>) is offering to buy Gentium (NASDAQ: <a class="ticker" href="/stock/gent#NASDAQ">GENT</a>) for approximately $1 billion had both stocks trading higher. JAZZ is not a large position (top 15) in IBB, but the news of more mergers in the biotech sector can be viewed as a positive for all stocks in the sector.

	The trend of M&amp;A activity in biotechs as well as related sectors should continue into 2014 and today the news from last night could be enough to see IBB close higher.

	First Trust Natural Gas Index ETF (NYSE: <a class="ticker" href="/stock/fcg#NYSE">FCG</a>)

	The natural gas stocks finally began to move yesterday and may catch up to the big move that has been made in the natural gas futures. The futures are at the highest level since July 2011, but the ETF that tracks the stocks has been in a downtrend for the last two months.

	The bullish news is that FCG held important price support at $18.75 and today rallied to close at $19.10. The RSI also triggered a buy signal and if the move in the natural gas futures continues it should boost interest in stocks that make up the ETF.

Commodities

Previews

Pre-Market Outlook

First Trust ISE-Revere Natural Gas Index Fund

GENT

JAZZ

ETF Outlook for Friday, December 20 (REM, USO, IBB, FCG)

ETF Outlook for the Tuesday, November 12, 2013

	Global X FTSE Greece 20 ETF (NYSE: <a class="ticker" href="/stock/grek#NYSE">GREK</a>)

	The Greek ETF (GREK) was highlighted in a recent Index Universe article stating how “cheap” the shares are today. According to their numbers the ETF is trading with a trailing P/E ratio of 1.0.

	What this means is that an investor is paying $1 for every dollar of earnings. To put this into perspective, the historical P/E ratio on the S&amp;P 500 is approximately 15.0. And the next lowest trailing P/E in the world of ETFS is 5.6 for the iShares MSCI Russia Capped ETF (NYSE: <a class="ticker" href="/stock/erus#NYSE">ERUS</a>).

	Could GREK be the bargain of a lifetime even after a 22 percent rally this year? Or is it one of the biggest value traps ever? It appears that GREK could be a diamond in the rough as long as the country does not regress on its slow progress towards becoming a healthy economy again.

	SPDR S&amp;P Retail ETF (NYSE: <a class="ticker" href="/stock/xrt#NYSE">XRT</a>)

	The markets traded in one the tightest trading ranges of the year yesterday with volume well below average. The Veterans Day holiday was a big reason for the lack of interest in stocks. However, one sector was able to collect some buyers as it rallied to a new all-time high with a gain of one percent.

	XRT closed at the best level ever and near the high of the day as it was led higher by big moves in Sears Holding (NASDAQ: <a class="ticker" href="/stock/shld#NASDAQ">SHLD</a>)and Francesca’s Holdings (NASDAQ: <a class="ticker" href="/stock/fran#NASDAQ">FRAN</a>). All signs are pointing towards a decent holiday shopping season, which would be a major catalyst for the sector.

	First Trust Cloud Computing Index ETF (NYSE: <a class="ticker" href="/stock/skyy#NYSE">SKYY</a>)

	The ETF had a good day yesterday, gaining 0.5 percent and closing a penny off the high of the session. Today may not be so kind to SKKY after its number six holding reported earnings last night after the bell. Rackspace (NYSE: <a class="ticker" href="/stock/rax#NYSE">RAX</a>) beat slightly on revenue, but EPS for the quarter came in at $0.11, four cents below the estimates.

	The stock immediately fell by eight percent after the news was released. The stock only accounts for 4 percent of the ETF, but this could be a situation where it brings down the entire niche sector.

	iShares FTSE NAREIT Mortgage REITs Index ETF (NYSE: <a class="ticker" href="/stock/rem#NYSE">REM</a>)

	One of the rare ETFs to trade on above average volume and make a big move yesterday was REM. The ETF closed down 1.3 percent to the lowest level in nearly three months. The ETF’s top holding, Annaly Capital Management (NYSE: <a class="ticker" href="/stock/nly#NYSE">NLY</a>), lost another 2.6 percent and closed at the lowest level since 2001.

	With NLY making up 16.4 percent of the portfolio the outlook does not look good for the ETF. Some bad decisions from management have investors fleeing NLY and at the same time sending REM close to a multi-year low.