Seeking Alpha

Kain buying stock of other mREITs

  • "There are numerous reasons to believe a repeat of 2013 is not in the cards," says American Capital Agency (AGNC +2.2%) CIO Gary Kain on the earnings call. He notes most traditional agency MBS investors are underweight the sector, and MBS have already priced in continued rises in interest rates.
  • Not only is American Capital aggressively repurchasing its own stock while it trades at a large discount to book value, but it bought $400M worth of other agency mREIT players ($237M in Q4, increased to $400M as of the end of January). Kain: Why buy more mortgages when you can buy the companies that own them for roughly 20% less than the value of the mortgages on their books.
  • Earnings call slides
  • Previous earnings coverage
  • Related ETFs: REM, MORT, MORL

Check out Seeking Alpha’s new Earnings Center »

Comments (28)
  • Darren McCammon
    , contributor
    Comments (1675) | Send Message
     
    Quite a statement, buying other mREITs!
    4 Feb 2014, 11:29 AM Reply Like
  • poor student
    , contributor
    Comments (25) | Send Message
     
    Yeah,....maybe Samsung should buy some Apple for a similar reason
    4 Feb 2014, 11:32 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1582) | Send Message
     
    I'll bet Apple owns some Samsung!
    4 Feb 2014, 11:45 AM Reply Like
  • chopchop0
    , contributor
    Comments (3846) | Send Message
     
    "I'll bet Apple owns some Samsung!"

     

    And Samsung owns apple where it counts.... by controlling its supply chain
    4 Feb 2014, 11:53 AM Reply Like
  • Vartu
    , contributor
    Comments (207) | Send Message
     
    That's why Apple will be having someone else make its iPhone/Pad chips soon.
    4 Feb 2014, 05:34 PM Reply Like
  • Van Hyder
    , contributor
    Comments (169) | Send Message
     
    Haha, take dollar that is levered 7.5X and then buy a share of a company that's buying MBS with dollars that are using 7-8X leverage. What could possibly go wrong?
    4 Feb 2014, 11:30 AM Reply Like
  • chopchop0
    , contributor
    Comments (3846) | Send Message
     
    yeah.... the statement at face value makes sense, but then you realize he isn't just buying the mortgages owned by those companies.
    4 Feb 2014, 11:54 AM Reply Like
  • surfgeezer
    , contributor
    Comments (7607) | Send Message
     
    you are talking price, he is talking yield spread Income. Apparently one of you does not understand the difference.
    4 Feb 2014, 01:08 PM Reply Like
  • Van Hyder
    , contributor
    Comments (169) | Send Message
     
    I like your capital "I" on income and my lack of an "a", makes us both look "smart.
    4 Feb 2014, 01:55 PM Reply Like
  • glf4mny
    , contributor
    Comments (416) | Send Message
     
    More than a statement, it's a conflict of interest for which the shareholders should sue him, the other officers and directors and the company.
    4 Feb 2014, 11:36 AM Reply Like
  • TruffelPig
    , contributor
    Comments (4103) | Send Message
     
    It is not. AAPL is the biggest hedge fund now......
    4 Feb 2014, 11:40 AM Reply Like
  • COBeeMan
    , contributor
    Comments (1582) | Send Message
     
    It is not a conflict of interest. The logic makes perfect sense to benefit his stockholders. Each mREIT has a slightly different strategy mix and no one has a crystal ball for this environment. Buying them now at a discount to their own MBS values makes perfect sense to take advantage of the different mixes.

     

    Also, I'm buying MORL every time it dips below $19.
    4 Feb 2014, 11:51 AM Reply Like
  • adrian816
    , contributor
    Comments (177) | Send Message
     
    Not sure about a conflict, if they're buying viable companies for their assets it's a chance to increase book value at less than the full price of those assets.
    4 Feb 2014, 11:55 AM Reply Like
  • surfgeezer
    , contributor
    Comments (7607) | Send Message
     
    look at what he is supposed to do-buy mortgage backed securities for yield spread Income- exactly where would that be a conflict, or something a shareholder should be upset about?
    4 Feb 2014, 01:10 PM Reply Like
  • searcher
    , contributor
    Comments (1669) | Send Message
     
    Elucidate, please.
    4 Feb 2014, 04:18 PM Reply Like
  • Kolya
    , contributor
    Comments (55) | Send Message
     
    YOU HAVE MISQUOTED KAIN - "There are numerous reasons to NOT believe a repeat of 2013 is in the cards" That's what I heard on the Conference Call...

     

    YOU SHOULD REPUBLISH URGENTLY
    4 Feb 2014, 11:51 AM Reply Like
  • ark2
    , contributor
    Comments (87) | Send Message
     
    Thanks for the clarification...I did not listen to the call and read that line here...I was wondering what aspect of 2013 we should be so happy to see repeated....
    4 Feb 2014, 11:54 AM Reply Like
  • Mevo
    , contributor
    Comments (35) | Send Message
     
    Not sure if it has been corrected or not, but the article correctly states this, the "NOT" is just placed differently.
    4 Feb 2014, 12:21 PM Reply Like
  • Kolya
    , contributor
    Comments (55) | Send Message
     
    You have 100% misquoted KAIN.

     

    He said "there are numerous reasons to NOT believe that a repeat of 2013 is in the cards"

     

    You should immediately repair this totally misleading error and re issue your email to the 26000 people who you are misleading.

     

    Thanks
    4 Feb 2014, 11:56 AM Reply Like
  • Mevo
    , contributor
    Comments (35) | Send Message
     
    Right now (corrected ?), I read that there are "numerous reasons to BELIEVE a repeat of 2013 is NOT in the cards" which at the end correctly means what you are reporting.
    4 Feb 2014, 12:26 PM Reply Like
  • Kolya
    , contributor
    Comments (55) | Send Message
     
    The article is correct now but 27000 people got an email with a summary of the article which has still not been corrected. It is wholly incorrect to assume that all 27000 people will open the link, to see the long version. I would guess only 25% of people got the correct message.
    A new cover email correcting the mistake should be sent
    6 Feb 2014, 09:07 AM Reply Like
  • smurf
    , contributor
    Comments (4474) | Send Message
     
    Nothing like a lot of confidence in your own company!
    4 Feb 2014, 12:02 PM Reply Like
  • 10392701
    , contributor
    Comments (42) | Send Message
     
    my takeaway-- mreit marketable securities are silly cheap for agency product (zero credit risk) so they're buying the marketable securities. Further as of last night they've reversed the book loss for Q4. so I get book around 25.27 as of 2/3. net interest margins may look like 160+ which is very decent and duration risk sits around 1.5 If one doesn't understand these terms then beware of getting involved with this security. For myself (long agnc) I like the tradeoff of perhaps a 12% yield against potential further book losses in a rising rate environment (which is arguable).
    4 Feb 2014, 12:26 PM Reply Like
  • ark2
    , contributor
    Comments (87) | Send Message
     
    Good summary. Isn't the return (160 bps x (leverage +1)), the +1 being for the security itself, on the BV and therefore a good bit higher on the stock while it trades at a discount? So 13% on 25.4 of BV is more like 15.5% on 21.4 (current price)? So we either get 12% yield if the stock trades back up to book or 15% while it remains discounted? Those returns btw do imply that the dividend goes back to 80 cents per quarter which is what I'd expect if 160 bps and 7.2x leverage (8.2x total dollars at work) holds.
    4 Feb 2014, 02:18 PM Reply Like
  • very_thirsty_for_income
    , contributor
    Comments (566) | Send Message
     
    AGNC manages a portfolio of securities. From an investment perspective, to fine tune a portfolio by adding securities that are undervalued is another way to generate future value and income to the portfolio. This activity can be pursued during periods when buyback opportunities are not available.
    5 Feb 2014, 08:43 AM Reply Like
  • patriot_invstr
    , contributor
    Comments (38) | Send Message
     
    To those stating Kain is not acting in the interest of shareholders - In a separate article (here on SA), Kain explained he is selling at 100 % of value and buying at 80% (20% discount). How would that NOT be in shareholders' interest? Also, AGNC buybacks were $600 mil, and other mREIT purchases totaled $400 mil. This seems like due diligence to me - good luck with that frivolous lawsuit.
    4 Feb 2014, 12:47 PM Reply Like
  • tstreet
    , contributor
    Comments (908) | Send Message
     
    One can question the strategy but given the big discounts to book available, it does not seem more risky than hanging on to an MBS. Potentially, AGNC may profit twice in the sense that the discount to MBS may decrease and the MBS may increase. If he has an MBS instead, he just gets the increase in the MBS. In any event the vast majority of holdings will continue to be MBS and company bought back stock. It does seem pretty radical but it just may benefit the stockholders more than just sitting on MBS.
    4 Feb 2014, 08:18 PM Reply Like
  • sparker561
    , contributor
    Comments (96) | Send Message
     
    This is not to question Kain's judgment. I just want to see if we all have the same understanding of the relationship between the market value of an agency MBS owned by a REIT and the REIT's financial position, share price, or both. Isn't it correct that the market/liquidation value of an agency MBS--which is affected by 10 Yr. rates and mortgage interest rates-- is (virtually) unaffected by the REITS's financial condition or share price or both; that the MBS and the shares of the REIT owning it are separate and distinct securities which trade in separate and distinct markets? (I am not ignoring share price and dividend risk/reward in Kains purchases) I just want to know if my understanding is correct and generally accepted, here, or if I misunderstand the relationship between the two. Anybody?
    4 Feb 2014, 03:24 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs