AXS Relaunches HYLD Fund to Focus on Mortgage REITs

Now called RINC, the ETF aims at once-derided mortgage-backed securities.

AXS Investments relaunched a high-yield ETF as a mortgage REIT exchange-traded fund, aiming to entice investors back to an investment whose reputation was tarnished by the 2008 financial crisis. 

The firm, which manages $793 million across 12 other ETFs, relaunched the $77 million High Yield ETF (HYLD) as the AXS Real Estate Income ETF (RINC) Aug. 28, changing the fund from a general high-yield income fund to one focusing on mortgage real estate investment trusts. Mortgage REITs are stocks of companies that hold mortgages and mortgage-backed securities. 

Mortgage-backed securities took a hit in the global financial crisis, when their value dropped significantly, as many of the subprime mortgages they contained defaulted. AXS’ stance is that the mortgage market is completely different now and that mortgage REITs now offer comparatively high yields for their level of risk. 

“While a huge percentage of loans written in the 2000s were subprime, virtually none of that goes on today. It’s very difficult to write anything that looks like subprime loans,” said Chris Acito, CEO of Gapstow Capital Partners, the consulting firm that designed the index that RINC tracks. 

Acito said the fund can fit in a portfolio as a replacement or supplement to high-yield corporate bonds, which he said have similar levels of risk but lower yields. He estimates that RINC will yield between high single-digit and low double-digit returns.  

While there isn’t the same default risk from subprime loans as there once was, Acito noted that RINC’s risk and yield are still on the high end of fixed income funds. Potential risks include the additional leverage REITs can employ, the lower liquidity of the loans held by REITs, and the possibility of rising rates lowering the value of residential mortgages. 

Under the Hood 

Half of the index RINC tracks is invested in commercial mortgages. The other half is divided between agency-backed residential and nonagency residential mortgages. The ETF weights each REIT equally within its category, making it less concentrated than a market-cap-weighted fund. 

Gregory Bassuk, CEO of AXS Investments, said the research required to assign each REIT to these categories justifies the fund’s 0.89% expense ratio, which is roughly double that of market-cap weighted mortgage REIT ETFs like the VanEck Mortgage REIT Income ETF (MORT) and the iShares Mortgage Real Estate ETF (REM). 

Bassuk said the time is ripe for the launch of RINC because banks are pulling back on commercial mortgage lending, increasing yields for mortgage REITs, and demand for residential mortgages is up again after a slump amid rising interest rates. 

Contact Gabe Alpert at [email protected]