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As most of you know, I'm not a huge fan of mortgage REITs. The reason: I just think the asset class is extremely volatile and for the "average" investor, mortgage REITs are way too complicated. My biggest concern with mortgage REITs is the correlation to rising interest rates - as they rise, bond prices fall. Accordingly, a rise in rates hurts the bond holdings of some REITs as some use complex hedging strategies to protect themselves from rate increases.

A few days ago I wrote an article on Annaly Capital Management (NLY), a mortgage REIT with around half of its portfolio hedged. Year-over-year Annaly shares have fallen by 29.36 percent and in December the company decreased...

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