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Ryan Brennan

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  • Is American Capital Agency Really This Cheap? [View article]
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    "However, June 7th was less than two weeks ago. Book value certainly has not fluctuated massively in this short time, which included two weekends of no trading."
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    There has been a lot of movement in the Agency MBS space in the past couple of weeks, so assuming that there has not been movement in book value based purely on time is flawed.

    For some very rough math, AGNC's 30 yr MBS portfolio has an average coupon of 3.70%. In their presentation that you link to you can see where FNMA prices were as of 6/7. Using the Fannie prices around the 3.70% coupon, there has been some major price movement that would have a very large negative impact to AGNC's book value:

    FNMA 3.50 - 6/7 price 103.17 - 6/21 price 100.72 (100-23)
    FNMA 4.00 - 6/7 price 105.27 - 6/21 price 103.50 (103-16)
    FNMA 4.50 - 6/7 price 106.72 - 6/21 price 105.72 (105-23)

    Prices can be found on Mortgage News Daily: http://bit.ly/17a2wZL

    These impact of these price changes is also multiplied because of the leverage that AGNC (and all mREITs) use.

    I am long the mREIT space (including AGNC). It's important that investors have an understanding of what they are getting themselves into and, in terms of mREITs, what price changes in the underlying securities will do to book value even over a short period of time.

    One final note - MTGE is a hybrid mREIT, not a commercial mREIT.
    Jun 21 03:23 PM | 4 Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    NIM is very important, though I think it's important to look at all of the different metrics together.
    Mar 28 08:29 AM | Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    SkiDad -

    Yield to Call is what your yield would be if the position is called at the call date. So in the case of AGNCP, your purchase price is $26.30, the call price (what you get back when the position is called) is $25, meaning you are going to lose $1.30 in principal when the position is called.

    The call date is April 2017, so you will still receive dividend payments for 4 years and 1 quarter (April, July, October 2013; full years 2014, 2015, and 2016; January and April 2017). Every quarter you receive $0.50, so you will receive $8.50 in dividend payments until the call date.

    So if the security is called, you will net $7.20 ($8.50 in div payments and the loss of $1.30 in principal).

    There are two fairly easy ways to calculate yield to call using excel functions. The RATE function allows you to put in the number of remaining payments (so if a position has traded ex-div, you know that you won't be getting the next payment, so you can adjust for that), or the YIELD function allows you to have a more simple formula but not account for ex-div dates.

    RATE( # of payments, payment per period, purchase price, call price)
    RATE(Years to Call * 4, (annual coupon / 4) * call price, negative Purchase Price, Call Price) * 4
    Note that the final *4 is on the entire function
    RATE(4.25 * 4, (8% / 4) * 25, -26.30, 25) *4

    YIELD( purchase date, call date, rate, purchase price with $100 face value, call price with $100 face value)
    * Because the par price of AGNCP is $25, we will multiply the purchase price and the call price by 4
    ** The dates have to be expressed as serial numbers, so it's easier to have a cell to enter them into and just reference that cell
    *** For the purchase date, you can use the TODAY() function
    YIELD(TODAY(), 42830, 8%, 26.30 * 4, 25 * 4)
    * 42830 is excel's serial number for 4/5/2017
    Mar 15 12:35 PM | Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    mcp3m - you are 100% correct, that is my mistake. The NIM that I reference is also inclusive of the TBA positions, otherwise it is 1.39%
    Mar 11 06:44 PM | 1 Like Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    If you can pick these preferreds up below the call price (not necessarily these specific issues but any of them), I am generally a fan because of the value you will receive when called. After the call date has passed, I generally do not purchase preferreds above the call price. If you purchased them below the call price or have received enough dividends that your effective cost is below the call price, I don't mind owning them.
    Mar 11 06:39 PM | Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    Thanks chengweiwei. It's definitely risky, although it's something that I am personally comfortable with.

    How do you feel about banks? Wells Fargo, for example, had a Tier 1 Leverage Ratio of 9.47% at the end of 2012. For turns of leverage, this would be 1 / 0.0947, or 10.6x levered. Bank of America has a Tier 1 Leverage Ratio of 7.36%, or 13.6x levered. JPMorgan has a Tier 1 Leverage Ratio of 6.16%, or 16.2x levered.

    Granted their cost of leverage is much lower then mREITs, but it gives you perspective of how levered other industries are by comparison.
    Mar 11 11:23 AM | 1 Like Like |Link to Comment
  • Is It Finally Time To Sell American Capital Agency Corp? [View article]
    smurf - I think it continues to be a solid sector that has generated fantastic returns for investors and will continue to do so.
    Feb 9 04:23 PM | Likes Like |Link to Comment
  • Is It Finally Time To Sell American Capital Agency Corp? [View article]
    Vartu - I don't think so. I think that the CreXus purchase helps diversify them into the commercial space and they have a lot of upside potential. They are less levered and trade at a large discount to NBV.
    Feb 9 04:20 PM | Likes Like |Link to Comment
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