As another disappointing jobs report spurs the Federal Reserve to renew its talk of quantitative easing and further depressing interest rates, many investors are tearing their hair out. Money market funds are getting hammered both here at home and across the pond, but don't despair -- there is a bright spot on the investment horizon: mortgage REITs.
The same events that cause distress for other funds can actually give mREITs a boost. Low interest rates look like they are here to stay at least until 2014, which means that these companies will continue to make money on the spread between short- and long-term interest rates. Even if rates start to rise in late 2014, chances are good that it will be a slow uptick over a long period of time, which would be better for REITs than an interest rate spike.
I read an article recently that gives a nice explanation of how these entities make their money, using American Capital Agency
Perennial favorite Annaly Capital Agency
As others note, though, mREITs are some of the very few investments that will garner you a decent return in this low-interest-rate environment, and thus are great to add to your portfolio. In addition, companies like Newcastle Investment
All investments involve risk, but knowing what you're jumping into before you jump is always the best policy, so do your due diligence on these REITs. If you're looking for investments for the next few years, you could do a lot worse than mREITs. At minimum, I would say that adding a smattering of your favorites to your investment profile would be a good hedge against times when everything else, including the economy, looks to be stuck in second gear for the foreseeable future.
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Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Bank of America and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.