iShares Mortgage Real Estate Capped ETF (REM) — REM fell sharply last week immediately following the release of the minutes from the latest FOMC policymaking meeting. The Federal Reserve pointed to a strong possibility that it will raise interest rates as early as June.
However, mortgage REITs should benefit from wider spreads due to higher interest rates, and REM appears to be on the upswing again, offering a bullish trade setup.
S&P Capital IQ gives the ETF, which offers exposure to the U.S. residential and commercial mortgage real estate sectors through real estate stocks and real estate investment trusts (REITs), an “Overweight” ranking.
The top 10 holdings in REM are Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC), Starwood Property Trust, Inc. (STWD), Two Harbors Investment Corp (TWO), New Residential Investment Corp (NRZ), Blackstone Mortgage Trust Inc (BXMT), Chimera Investment Corporation (CIM), MFA Financial, Inc. (MFA), Colony Capital Inc (CLNY) and Hatteras Financial Corp. (HTS).
Turning to the chart, REM broke through a significant resistance line at about $9.90 on May 5. Shares then ran to a high of $10.34 on May 17 on very high volume, confirming a “W” bottom that began forming in January.
On Tuesday, REM executed a golden cross — a long-term buy signal in which the 50-day moving average crosses up through the 200-day moving average.
Buy REM under $10.25 with a target of $11.50 for a return of at least 12%, plus its impressive 11% yield.