Despite the recent rally in the equity markets, the leading indicators put out by the Economic Cycle Research Institute ("ECRI") continue to point to a weakening economy. Investors should regularly visit the Businesscycle.com site to review the changes in the weekly indicators. Click to enlarge:
Click to enlarge
Investors concerned about a weakening economy and choppy economic recovery should consider investing in mortgage REITs, which benefit from low interest rates and a steep yield curve.
Below is a list of large mortgage REITs that investors should consider:
In general, we think interests rates will remain low for the foreseeable future (next 12-24 months). As such, we believe mREITs offer investors an extremely compelling risk/reward profile (the mREITs on the list above have an average dividend yield of 14.9%). However, we caution investors to watch interest rates very closely if invested in the space.
Annaly Capital (NYSE:NLY) and MFA Financial (NYSE:MFA) remain our two main REIT holdings due to their strong management teams and proven ability to manage their portfolios in any interest rate environment. However, we also have a small position in American Capital Agency Corp. (NASDAQ:AGNC).
Disclosure: I am long NLY, MFA, AGNC.