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:
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 (NLY) and MFA Financial (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. (AGNC).
Disclosure: I am long NLY, MFA, AGNC.