Sunday 2 March 2014

mREITS

mREITs are Mortgage-backed Real Estate Investment Trusts listed in the US. 

They were very much in favour in 2011 and 2012 with very high yields (13-17%) and capital appreciation!

But last year was a tough year for mREITs with talk of the FED tapering. Spreads widened and yields became depressed as talk of mREITs facing increased gearing costs affected the quarterly payouts.

Then suddenly the taper stopped with Janet Yellen choosing to hold on to pumping Fiat money into the system for awhile longer. And mREITs came back in favour again.

I got into some of it late last year, attracted by the falling but still high yields. Even factoring withholding taxes, the yields I could get were around 10-12%. 

After the hold on tapering, these mREITs have shot back up, most have gone past 20% in capital appreciation. And with a hopeful revision of the quarterly payouts upwards, hopefully we will see even more capital appreciation.

Yet, tapering will have to happen at some stage. While Yellen has put a hold on things, she has indicated that tapering will continue probably soon. By then I would assume that most mREITs' prices will get hit again.

But wait, this hiatus has actually done a good thing for mREITs. It has bought time for alot of the mREIT managers, many of whine weren't clear how badly tapering would affect their payouts and stock prices. Already, we are seeing several mREITs started to diversify from mortgage paper, while others are hoarding cash to lower eventual gearing.

These are good moves that eventually prompted me to decide to continue holding my mREITs (it was actually this that I was deliberating about previously). Hopefully I have discipline to keep on holding them for a far longer term. And hopefully they will compound and pay off for me!

HUAT AH!

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