MGIC Investment Corp. (MTG), Radian Group Inc (RDN): Why You Should Consider Mortgage Finance

Diversified exposure

When writing about companies with high risks, I always like to include an alternative investment vehicle for the more risk adverse investor. In this case, I want to highlight an exchanged traded fund, the SPDR S&P Mortgage Finance ETF provides investors diversified exposure within the broader mortgage finance industry. Below, I have created a chart showing the current breakdown of the fund.

Investors will receive diversification and exposure to both the housing recovery and insurance sectors. The housing recovery portion of this portfolio will benefit from greater housing demand and credit quality as mentioned previously. Additionally, the insurance portion of this portfolio will benefit from increasing interest rates as these firms can generate higher return on the lumps of cash they currently have parked in low yielding products.

Summary

The mortgage finance industry stands to benefit from a number of tailwinds, including higher credit quality, lower delinquencies, and rising interest rates. Investors might consider the options above to benefit from these drivers.

Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Why You Should Consider Mortgage Finance originally appeared on Fool.com.

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