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2 mREIT Stocks to Invest in Despite Challenging Industry Trends
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The Zacks REIT and Equity Trust industry is bearing the brunt of mortgage rate volatility, fueled by persistent inflation and broader economic uncertainty. With mortgage rates averaging in the above-6% range in recent weeks, industry players are likely to face continued earnings pressure in the near term.
Ongoing affordability challenges in the housing market are weighing on purchase originations and refinancing activity. However, companies like Ellington Financial LLC (EFC - Free Report) and Adamas Trust, Inc. (ADAM - Free Report) are well-poised to navigate industry challenges.
About the Industry
The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (“MBS”), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.
What's Shaping the Future of the mREIT Industry?
Volatility in Mortgage Rates Keeps Buyers on Sidelines: The 30-year fixed mortgage rate has climbed in recent weeks to the above-6% range from the low-6% range at the start of 2026.
The Federal Reserve has kept interest rates unchanged so far in 2026 as policymakers continue to balance rising inflation with a resilient labor market. Against this backdrop, mortgage rates are likely to remain elevated in the near term. Higher borrowing costs, combined with affordability pressures and economic uncertainty, have discouraged many potential homebuyers from entering the market.
As a result, mortgage origination and refinancing activity are under pressure. This trend is expected to heighten operational and financial challenges for mREIT industry players, while weighing on gain-on-sale margins and limiting investment activity.
Industry Resorts to Dividend Cuts as Book Values Erode: Elevated interest rates, persistent mortgage market volatility and the widening spread between 30-year Agency mortgage-backed securities (MBS) and 10-year U.S. Treasury yields have reduced the value of Agency MBS portfolios.
As such, agency mREITs are witnessing a decline in tangible book value as spreads on benchmark indices have widened. This will increase earnings pressure for highly leveraged mREITs.
To preserve capital and align payouts with sustainable earnings, many industry players are reducing dividends. Dividend cuts may trigger investor outflows from income-focused funds, further weighing on share prices and book values, creating near-term headwinds for the mREITs.
Conservative Approach to Aid Long-Term Returns: In the current volatile mortgage market environment, mREITs are adopting a more conservative approach, which could strengthen their long-term positioning. By becoming more selective in their investments, these companies are focusing on higher-quality assets, thereby enhancing the overall resilience and stability of their portfolios. This disciplined strategy helps reduce exposure to risky credit conditions and limits potential losses during periods of uncertainty.
Additionally, the use of higher hedge ratios to manage interest rate risks reflects prudent financial management. While this approach may restrict near-term upside, it improves earnings visibility and protects capital from sudden market fluctuations.
By prioritizing liquidity, asset quality and risk management, mREITs are better-equipped to navigate market volatility and capitalize on attractive opportunities once conditions stabilize.
Overall, this cautious stance supports sustainable performance and creates a stronger foundation for consistent long-term returns.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. The industry carries a Zacks Industry Rank #235, which places it in the bottom 5% of more than 244 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of the discouraging earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry’s current-year earnings estimate moved 10.4% down over the last year.
Before we present a few stocks that you may want to buy despite near-term challenges, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the Sector & the S&P 500
The Zacks REIT and Equity Trust industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has gained 4.4% in the above-mentioned period compared with the broader sector’s rise of 13.7%. The S&P Index has advanced 19.9% over the past year.
Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-book (P/B), which is a commonly used multiple for valuing mREITs, the industry is trading at 0.93X compared with the S&P 500’s 7.19X. In the past five years, the industry has traded as high as 1.06X, as low as 0.70X and at the median of 0.91X.
Price-to-Book TTM
As finance stocks typically have a low P/B ratio, comparing REIT and Equity Trust with the S&P 500 may not make sense to many investors. A comparison of the group’s P/B ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/B came in at 4.51X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
2 mREIT Stocks to Bet On
Ellington Financial invests in a diverse array of financial assets. These include residential and commercial mortgage loans, and mortgage-backed securities, consumer loans and asset-backed securities. The assets are supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
EFC is particularly benefiting from favorable performance across its residential credit strategies. Non-qualified mortgage loans remain the largest component of its investment portfolio, while residential transition loans, second-lien loans, non-Agency RMBS and mortgage servicing-related investments are providing attractive returns. The company’s adjusted long investment portfolio increased to $4.50 billion as of June 30, 2026, aided by growth in residential transition and commercial mortgage bridge loans. Continued low realized credit losses across residential and commercial lending businesses highlight healthy underlying asset quality and should support earnings stability.
The growing contribution from Longbridge Financial, EFC’s vertically integrated reverse mortgage platform, is another major positive. Longbridge originated $589.7 million in loans during the second quarter 2026, up 38% year over year, supported by strong volumes and margins.
EFC is benefiting from its expanding securitization capabilities and flexible funding structure. Securitizations provide the company with an efficient avenue to finance loan growth, recycle capital and reduce the dependence on shorter-term mark-to-market borrowing. At June-end, EFC had $1.86 billion of unencumbered assets, including $247.5 million in cash and cash equivalents, providing meaningful liquidity to pursue attractive investment opportunities. A growing pipeline of high-yielding loans sourced through EFC’s origination partners, coupled with disciplined risk management and diversified funding sources, should help the company sustain attractive risk-adjusted returns over time.
The company’s 2026 earnings estimates have been unchanged at $1.95 per share over the past month, indicating year-over-year growth of 7.1%.
EFC carries a Zacks Rank #2 (Buy) at present and has a market capitalization of $1.74 billion.
Price and Consensus: EFC
Adamas Trust, a mortgage real estate investment trust focused primarily on residential mortgage assets, continues to benefit from expansion across its Agency and single-family credit portfolios. In the second quarter of 2026, the company acquired $1.5 billion in new single-family residential investments, including $798.3 million in Agency assets and $632.3 million in business-purpose loans. This portfolio growth helped adjusted net interest income rise 4.4% sequentially to $50.3 million, while earnings available for distribution increased 36.4% year over year to 30 cents per share.
Adamas Trust is further benefiting from scale in its Agency mortgage portfolio and access to securitization financing. The Agency portfolio increased to $7.2 billion as of June 30, 2026, with 89% invested in specified pools carrying an average coupon of 5.48%.
The improving operating backdrop is also translating into stronger shareholder returns. Book value per share increased 1.8% sequentially to $10.16, marking the company's fourth consecutive quarter of book-value growth, while adjusted book value rose 2.3% to $11.05 per share. Adamas Trust also raised its quarterly dividend 17.4% to 27 cents per share. Continued portfolio expansion, strong business-purpose loan originations, diversified mortgage exposure and access to securitization funding should support the company's earnings and book-value growth if credit performance remains healthy.
The company’s 2026 earnings estimates have been unchanged at $1.95 per share over the past month, indicating year-over-year growth of 7.1%.
View the Zacks #1 Rank List
Image: Bigstock
2 mREIT Stocks to Invest in Despite Challenging Industry Trends
The Zacks REIT and Equity Trust industry is bearing the brunt of mortgage rate volatility, fueled by persistent inflation and broader economic uncertainty. With mortgage rates averaging in the above-6% range in recent weeks, industry players are likely to face continued earnings pressure in the near term.
Ongoing affordability challenges in the housing market are weighing on purchase originations and refinancing activity. However, companies like Ellington Financial LLC (EFC - Free Report) and Adamas Trust, Inc. (ADAM - Free Report) are well-poised to navigate industry challenges.
About the Industry
The Zacks REIT and Equity Trust industry comprises mortgage REITs, also known as mREITs. Industry participants invest in and originate mortgages and mortgage-backed securities (“MBS”), and provide mortgage credit for homeowners and businesses. Typically, these companies focus on either the residential or commercial mortgage markets. Some invest in both markets through asset-backed securities. Agency securities are backed by the federal government, making them safer bets and limiting credit risks. Such REITs raise funds in the debt and equity markets through common and preferred equity, repurchase agreements, structured financing, convertible and long-term debt, and other credit facilities. The net interest margin, the spread between interest income on mortgage assets and securities held, as well as funding costs, is a key revenue metric for mREITs.
What's Shaping the Future of the mREIT Industry?
Volatility in Mortgage Rates Keeps Buyers on Sidelines: The 30-year fixed mortgage rate has climbed in recent weeks to the above-6% range from the low-6% range at the start of 2026.
The Federal Reserve has kept interest rates unchanged so far in 2026 as policymakers continue to balance rising inflation with a resilient labor market. Against this backdrop, mortgage rates are likely to remain elevated in the near term. Higher borrowing costs, combined with affordability pressures and economic uncertainty, have discouraged many potential homebuyers from entering the market.
As a result, mortgage origination and refinancing activity are under pressure. This trend is expected to heighten operational and financial challenges for mREIT industry players, while weighing on gain-on-sale margins and limiting investment activity.
Industry Resorts to Dividend Cuts as Book Values Erode: Elevated interest rates, persistent mortgage market volatility and the widening spread between 30-year Agency mortgage-backed securities (MBS) and 10-year U.S. Treasury yields have reduced the value of Agency MBS portfolios.
As such, agency mREITs are witnessing a decline in tangible book value as spreads on benchmark indices have widened. This will increase earnings pressure for highly leveraged mREITs.
To preserve capital and align payouts with sustainable earnings, many industry players are reducing dividends. Dividend cuts may trigger investor outflows from income-focused funds, further weighing on share prices and book values, creating near-term headwinds for the mREITs.
Conservative Approach to Aid Long-Term Returns: In the current volatile mortgage market environment, mREITs are adopting a more conservative approach, which could strengthen their long-term positioning. By becoming more selective in their investments, these companies are focusing on higher-quality assets, thereby enhancing the overall resilience and stability of their portfolios. This disciplined strategy helps reduce exposure to risky credit conditions and limits potential losses during periods of uncertainty.
Additionally, the use of higher hedge ratios to manage interest rate risks reflects prudent financial management. While this approach may restrict near-term upside, it improves earnings visibility and protects capital from sudden market fluctuations.
By prioritizing liquidity, asset quality and risk management, mREITs are better-equipped to navigate market volatility and capitalize on attractive opportunities once conditions stabilize.
Overall, this cautious stance supports sustainable performance and creates a stronger foundation for consistent long-term returns.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks REIT and Equity Trust industry is housed within the broader Zacks Finance sector. The industry carries a Zacks Industry Rank #235, which places it in the bottom 5% of more than 244 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of the discouraging earnings outlook for the constituent companies.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry’s current-year earnings estimate moved 10.4% down over the last year.
Before we present a few stocks that you may want to buy despite near-term challenges, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags the Sector & the S&P 500
The Zacks REIT and Equity Trust industry has underperformed the broader Zacks Finance sector and the S&P 500 composite in the past year.
The industry has gained 4.4% in the above-mentioned period compared with the broader sector’s rise of 13.7%. The S&P Index has advanced 19.9% over the past year.
Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-book (P/B), which is a commonly used multiple for valuing mREITs, the industry is trading at 0.93X compared with the S&P 500’s 7.19X. In the past five years, the industry has traded as high as 1.06X, as low as 0.70X and at the median of 0.91X.
Price-to-Book TTM
As finance stocks typically have a low P/B ratio, comparing REIT and Equity Trust with the S&P 500 may not make sense to many investors. A comparison of the group’s P/B ratio with that of the broader sector ensures that the group is trading at a solid discount. The Zacks Finance sector’s trailing 12-month P/B came in at 4.51X. This is above the Zacks REIT and Equity Trust industry’s ratio, as the chart below shows.
Price-to-Book TTM
2 mREIT Stocks to Bet On
Ellington Financial invests in a diverse array of financial assets. These include residential and commercial mortgage loans, and mortgage-backed securities, consumer loans and asset-backed securities. The assets are supported by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
EFC is particularly benefiting from favorable performance across its residential credit strategies. Non-qualified mortgage loans remain the largest component of its investment portfolio, while residential transition loans, second-lien loans, non-Agency RMBS and mortgage servicing-related investments are providing attractive returns. The company’s adjusted long investment portfolio increased to $4.50 billion as of June 30, 2026, aided by growth in residential transition and commercial mortgage bridge loans. Continued low realized credit losses across residential and commercial lending businesses highlight healthy underlying asset quality and should support earnings stability.
The growing contribution from Longbridge Financial, EFC’s vertically integrated reverse mortgage platform, is another major positive. Longbridge originated $589.7 million in loans during the second quarter 2026, up 38% year over year, supported by strong volumes and margins.
EFC is benefiting from its expanding securitization capabilities and flexible funding structure. Securitizations provide the company with an efficient avenue to finance loan growth, recycle capital and reduce the dependence on shorter-term mark-to-market borrowing. At June-end, EFC had $1.86 billion of unencumbered assets, including $247.5 million in cash and cash equivalents, providing meaningful liquidity to pursue attractive investment opportunities. A growing pipeline of high-yielding loans sourced through EFC’s origination partners, coupled with disciplined risk management and diversified funding sources, should help the company sustain attractive risk-adjusted returns over time.
The company’s 2026 earnings estimates have been unchanged at $1.95 per share over the past month, indicating year-over-year growth of 7.1%.
EFC carries a Zacks Rank #2 (Buy) at present and has a market capitalization of $1.74 billion.
Price and Consensus: EFC
Adamas Trust, a mortgage real estate investment trust focused primarily on residential mortgage assets, continues to benefit from expansion across its Agency and single-family credit portfolios. In the second quarter of 2026, the company acquired $1.5 billion in new single-family residential investments, including $798.3 million in Agency assets and $632.3 million in business-purpose loans. This portfolio growth helped adjusted net interest income rise 4.4% sequentially to $50.3 million, while earnings available for distribution increased 36.4% year over year to 30 cents per share.
Adamas Trust is further benefiting from scale in its Agency mortgage portfolio and access to securitization financing. The Agency portfolio increased to $7.2 billion as of June 30, 2026, with 89% invested in specified pools carrying an average coupon of 5.48%.
The improving operating backdrop is also translating into stronger shareholder returns. Book value per share increased 1.8% sequentially to $10.16, marking the company's fourth consecutive quarter of book-value growth, while adjusted book value rose 2.3% to $11.05 per share. Adamas Trust also raised its quarterly dividend 17.4% to 27 cents per share. Continued portfolio expansion, strong business-purpose loan originations, diversified mortgage exposure and access to securitization funding should support the company's earnings and book-value growth if credit performance remains healthy.
The company’s 2026 earnings estimates have been unchanged at $1.95 per share over the past month, indicating year-over-year growth of 7.1%.
ADAM sports a Zacks Rank # 1 (Strong Buy) at present and has a market capitalization of $876.3 million. You can see the complete list of today’s Zacks #1 Rank stocks here.
Prcie and Consensus: ADAM