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KBW's picks for a Summers-less Fed

  • Remaining positive on mREITs (REM) as Summers' withdrawal reduces the chance of a continued sharp move higher in rates, KBW has 3 picks for a flattening yield curve.
  • For an aggressive play, try CYS Investments, trading at an estimated 85% of book value, and among the more rate-sensitive of the sector thanks to its relatively high duration gap and leverage.
  • More conservative picks would be Gary Kain's two vehicles, American Capital Agency (AGNC) and American Capital Mortgage (MTGE), both trading at about 91% of book, but better-hedged against higher rates.
  • Related ETFs: MORT, MORL.
Comments (5)
  • pblenke
    , contributor
    Comments (5) | Send Message
     
    It is about time people realize that interest rates will not continue to rise into the indefinite future. Inflation(as reported by the government)
    and economic growth do not justify higher rates.

     

    I also believe the fed will not allow short term rates to increase until at minimum late 2014.

     

    In this environment MTGE & AGNC make sense to own.
    17 Sep 2013, 02:21 PM Reply Like
  • smurf
    , contributor
    Comments (3786) | Send Message
     
    In the hypothetical environment you describe, I agree.
    17 Sep 2013, 04:57 PM Reply Like
  • RWMostow
    , contributor
    Comments (1325) | Send Message
     
    Smurf-

     

    Do I infer that you are avoiding MTGE & AGNC?

     

    Not trying to challenge you. I'm sincerely curious. Thank you.

     

    -rwm
    17 Sep 2013, 06:08 PM Reply Like
  • smurf
    , contributor
    Comments (3786) | Send Message
     
    @RW

     

    Well, everyone agrees that higher interest rates are negative for mREITs in general.

     

    So, in the first place, I don't agree that interest rates won't rise until late '14. In fact, a tapering announcement is expected from the Fed today (9/1813). A modest one, from all reports, but definitely the start of this weaning away process, which will inevitably lead to an upward creep in interest rates sooner rather than later.

     

    Furthermore, my knowledge and understanding of these complicated investment vehicles is somewhat superficial, and recent experience with AGNC and DX have me convinced that it's best to avoid them in the future.

     

    Thanks!
    18 Sep 2013, 10:27 AM Reply Like
  • Javimanic
    , contributor
    Comments (232) | Send Message
     
    I appreciate any report on the mreits, thanks. always creates conversation
    17 Sep 2013, 07:34 PM Reply Like
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