Paid a hedged agency mREIT a 14 percent yield and still came out behind a 5 percent savings account over 18 months
The yield looked right on paper. Dividends landed consistently, no cuts, reinvested automatically. But book value declined roughly 8 percent over the same period as rates moved against the portfolio, and the hedges did not fully offset because the position was running short-dated swaps against longer MBS duration. When you add the unrealized loss on shares sold to exit the position, the total return came to about 4.3 percent annualized on a per-dollar-deployed basis, before tax. The savings account at 5.1 percent beat it on a risk-adjusted basis without the complexity. The lesson is not that the mREIT was a bad instrument. It is that the dividend yield was doing none of the work of measuring total return, and book value change over the hold period was the variable that actually determined the outcome. The spread the portfolio earned on its assets never fully reached the shareholder because the hedging drag, fee load, and book erosion absorbed a meaningful slice first. That gap between what the mortgage pool earns and what lands in an investor's account after all three of those costs is the number that deserves the most attention before entry, and it is rarely disclosed in a form you can read in five minutes. How long was your intended hold when you first sized the position, and did you model any book value decline into that projection?
