- Skeptical about investing in mREITs until maybe another washout from another leg up in interest rates, one trader - eyeing the "sheer cheapness" of the sector and the wholesale selling of stocks with no regard to durations or NAV - can wait no longer. Investors, he/she says, stand to make a low-risk 20-30% over the next 12-24 months - much of it in cash dividends - even if rates do climb to 3.5-4%.
- His/her top pick is Ellington Residential (EARN +0.1%), managed by the same crack team who has been able to preserve book value so well at Ellington Financial (EFC +0.6%). The stock trades at a 16% discount to book, at 6.3x core EPS (earnings from interest, not cap gains), and has about a 5% exposure to higher rates - meaning a 100 bps rise in rates would ding book value by 5%, still putting the stock at just 89% of book.
- Should rates stabilize, the upside is 1x book value. Add in dividends and that's a 32% return in a year.
- Also getting a positive mention for preserving book value in a tough time is MFA Financial
- Related ETFs: REM, MORT, MORL
MReits: Money lying in a corner?
Jan 8 2014, 15:11 ET