Van Eck Global Launches Mortgage REIT ETF

NEW YORK CITY-Asset manager Van Eck Global launched a new mortgage REIT ETF Wednesday, Market Vectors Mortgage REIT Income ETF. It’s designed to track the performance of the Market Vectors Global Mortgage REITs Index, which the firm says was comprised of 25 REITs as of July 31, 2011. These are all focused on residential and commercial mortgages, and include Annaly Capital Management, American Capital Agency Corp. and Chimera Investment Corp.

The launch comes at a potentially inauspicious time, both on the heels of a turbulent few weeks on the stock market and of Standard & Poor’s downgrade of US debt. However, favorable to this type of REIT is another recent development: the announcement by the Federal Open Market Committee that it plans to keep interest rates at a relatively low level at least through mid-2013.

“We know that the Fed views short rates on hold for the next almost 24 months and that there will continue to be good opportunities for mortgage REITs to generate fairly substantial dividends,” Sean Kelleher, chief investment strategist at Shay Assets Management, said at the rollout of the ETF. “I think that’s going to allow them to continue to raise capital.”

The Fund started trading Wednesday at a launch price of $25. It has a net expense ratio of 0.40%.

Of late, mortgage rates have had high yields, which adds to their popularity. “Historically the appeal of mortgage REITs has been their high historical yield,” Edward Lopez, marketing director and product manager for Market Vectors ETFs, said Wendesday. “Since 1990 the yields have averaged in the double digits.”

The current environment, though, which includes uncertainty regarding the future of Fannie Mae and Freddie Mac, could influence their future. However, Kelleher sees this as a potential bonus.

“With Freddie and Fannie receding from the headlines, banks are shrinking their balance sheets,” he said. “We’re really opening a pretty vast window for new players to come into the market and the big question going forward is who will be the eventual winners in that scenario. I suggest that REITs are extremely well positioned to be that winner and there are ways that they can participate in that reduction of control of the market by Freddie and Fannie.”

Kelleher predicts that mortgage REITs will not only grow their capital base--they’ll also increasingly look to get into mortgage origination, thereby enabling themselves to securitize their own mortgage product.