This year has been marked with ups and downs for mortgage REITs that provide real estate financing through the purchase of mortgages and mortgage-backed securities (MBS). Volatile markets triggered by global growth worries and a stronger dollar weighed on these REITs.

Meanwhile, these companies are buying back shares and diversifying their businesses to beat market woes. Moreover, a low interest rate environment is expected to benefit the performance of mortgage REITs. These REITs finance their investments with equity and debt capital and generate profits through the spread between interest income on mortgage assets and funding costs. Lower interest rates would certainly aid their borrowing cost, pushing earnings and dividends higher.
 
Below we have highlighted the earnings of some of the major players in the mortgage REIT sector.
 
Earnings in Detail
 
American Capital Agency Corp. (AGNC) saw fourth-quarter 2015 net spread and dollar roll income of 54 cents per share (excluding estimated “catch-up” premium amortization benefit), that fell short of the Zacks Consensus Estimate of 57 cents. The reported figure, however, rose from 51 cents in the prior-year quarter. Moreover, the company’s net interest income (“NII”) of $288 million beat the Zacks Consensus Estimate of $246.6 million and came in higher than $218 million in the prior-year quarter.
 
As of December 31, 2015, the company’s net book value per share was $22.59, down from $23.00 as of September 30, 2015. The fall in net book value per share was more than offset by investments and accretion from share buyback. Shares of the company have gained 7.5% (as of March 2, 2016) since the fourth-quarter earnings release.
 
Another key player, Annaly Capital Management, Inc. (NLY) saw fourth-quarter 2015 normalized core earnings per share of 31 cents, down from 33 cents earned a year ago but above the Zacks Consensus Estimate of 28 cents. NNI totaled $457.8 million, down 10.9% year over year but ahead of the Zacks Consensus Estimate of $308 million.
 
Annaly’s book value per share came in at $11.73 as of December 31, compared with $13.10 as of December 31, 2014. At the end of quarter, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.3%, down 151 basis points (bps) year over year. Shares of the company gained 2.5% post earnings, as of March 2.
 
ETFs to Watch
 
Impressive performance of these mortgage REITs is expected to translate into gains for REIT ETFs as well. Below, we have highlighted two of these ETFs that are likely to remain in focus in the upcoming days.

iShares Mortgage Real Estate Capped ETF (REM)
 
REM tracks the FTSE NAREIT All Mortgage Capped Index, measuring the performance of the residential and commercial mREIT market in the U.S. The fund consists of 37 securities in its basket while it charges investors 48 bps a year. American Capital and Annaly Capital are the top two holdings in the fund with a combined allocation of almost 30%. The product has amassed around $754.5 million in its asset base and trades in an average volume of 1.1 million shares per day. It has a solid yield of 12.33%. REM declined 2.2% so far this year but has gained 4.1% in the last 30 days and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
 
Market Vector Mortgage REIT Income ETF (MORT)
 
The ETF tracks the Market Vectors Global Mortgage REITs Index. The fund consists of 24 stocks and charges 41 bps in investor fees per year. Like REM, the above-mentioned mREITs occupy the top two spots in MORT, having a combined exposure of nearly 25%. The fund is relatively less popular with an asset base of $90.2 million and an average volume of roughly 38,000 shares per day. It has a dividend yield of 10.27%, comparable to that of REM. MORT also lost 2.9% in the year-to-date frame but was up 4.4% in the last one-month period.