A little over two years ago I wrote two articles about Annaly Capital, explaining their business model based on my own experience as a portfolio manager in a somewhat related business.
The two things I like least about Annaly's model are:
(1) mismatch between maturity of their assets (mortgage bonds with multi-year maturities) and their liabilities (lines of credit with short maturities); and
(2) relatively high leverage, currently more than a 5-to-1 ratio of debt-to-equity.
Together, these two features expose shareholders to very high risk of loss of principal, as demonstrated in the past five years. (I am sure there are many other factors that led to the stock's decline, but fundamentally I think the two items above are enough for risk-averse investors to avoid the company).
This got me thinking about how investors can generate attractive yield today--in a rising interest rate environment--without sacrificing preservation of capital. I do believe (based on my owner work as a portfolio manager) that there are niche strategies that can accomplish both goals. However, these niche strategies require a little more effort and research to execute vs. just buying shares in a company like Annaly.
I have written a draft white paper on the subject and I am looking for investors willing to read and potentially critique my white paper. I am also looking for ideas about how to get the ideas in the white paper out into the ongoing conversation about what investors need to do given that the Fed is going to start allowing rates to rise, probably in Q1 2014.
If you are interested and/or willing to have a look at my white paper, please email me at email@example.com or text or even call me at (310) 428-9109.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.