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Kain buying mREIT shares at AC Mortgage as well

  • As he's doing with American Capital Agency (AGNC -0.6%), CIO Gary Kain is supplementing share repurchases at American Capital Mortgage (MTGE) with outright buys of the common stock of agency mortgage REITs.
  • MTGE purchased $39M of other mREIT stock in Q4, a number lifted to $54M by the end of January. Buybacks of MTGE stock in Q$ were about 1.5M shares, or roughly 3% of the float. For all 2013, the company bought back about 13% of the outstanding stock.
  • Kain on the earnings call: "Given the sizable price to book discounts in the mortgage REIT space, we believed it made sense to sell some agency MBS and buy similar MBS assets in REIT equity form at around 80% of book value. At that discount, it is equivalent to buying agency MBS 2.5 points lower in price than where you can sell them ... To us, the choice was pretty straight-forward."
  • Having had their fill of questioning Kain on the stock purchases during the AGNC call on Tuesday, analysts today spent most of their time asking about the mortgage servicer acquisition - Residential Credit Solutions. While the yield on the interest-only component of MSRs is just 5-10%, the return is higher, says Kain, because owning MSRs - which act as natural interest rate hedges - allows MTGE to pull off other hedges which cost the company money.
  • CC transcript
  • Presentation slides
Comments (12)
  • Mevo
    , contributor
    Comments (31) | Send Message
     
    Maybe he bought MTGE shares at AGNC and AGNC shares at MTGE ? ;)
    6 Feb, 05:23 PM Reply Like
  • Tucker Leppa
    , contributor
    Comments (343) | Send Message
     
    No he strictly said they are only buying agency mREITs in the AGNC conference call.
    6 Feb, 05:35 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8157) | Send Message
     
    Buying dollar bills for 80¢ each?

     

    When does that ever NOT make sense?
    6 Feb, 06:08 PM Reply Like
  • Tucker Leppa
    , contributor
    Comments (343) | Send Message
     
    When you can't spend those dollar bills anywhere....
    6 Feb, 06:44 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8157) | Send Message
     
    Where can't you spend dollar bills?
    6 Feb, 09:41 PM Reply Like
  • Tucker Leppa
    , contributor
    Comments (343) | Send Message
     
    It was a joke, but your metaphor is apples to oranges. I think we can all agree that the mREITs will trade back to book value. However, it is debatable how we get there; whether it be a decrease in book value or an appreciation in share price. I'm of the opinion it will be a mix depending on the mREIT.
    I still wouldn't be a long term holder of AGNC or MTGE even at these levels, but that's just me. I am long CMO, CYS, and TWO though.
    6 Feb, 10:14 PM Reply Like
  • murray555
    , contributor
    Comments (219) | Send Message
     
    To each their own as they say. But in my mind anyone who didn't pick up some shares of AGNC in December missed an incredible opportunity to make some money.
    I am sure there are many who will argue that point but I think by this time next year my ROI on AGNC will leave me very satisfied.
    BTW----the same goes for those who failed to pick up SDRL recently below $36.00. Really?
    7 Feb, 08:00 AM Reply Like
  • 67g8i32
    , contributor
    Comments (200) | Send Message
     
    When solar replaced fossil fuel SDRL could go to 60 cents but nobody knows when.
    7 Feb, 02:51 PM Reply Like
  • Tucker Leppa
    , contributor
    Comments (343) | Send Message
     
    It is all opportunity cost, I'm glad to have owned CYS instead of AGNC, they have done better since the December lows.
    It's easy to say people should have owned AGNC since December lows using your hindsight glasses.
    7 Feb, 02:53 PM Reply Like
  • Positive Concavity
    , contributor
    Comments (152) | Send Message
     
    When you are buying different mREITs opportunity cost is one element, but there is also the differing risk exposures of the underlying portfolios. CYS had significantly more interest rate risk exposure than AGNC ending Q3 and into Q4. Tuesday will be an interesting report to see how CYS' very long duration position reported in Q3 performed in Q4.
    8 Feb, 09:29 PM Reply Like
  • thomas j. flaherty
    , contributor
    Comments (117) | Send Message
     
    When they are headed to 60 cents? Just sayin...
    6 Feb, 09:37 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8157) | Send Message
     
    I heard that the assets would trade for 60¢ on the dollar a couple of months ago.

     

    Then bond yields fell back down and the people who said that have suddenly disappeared.

     

    Good luck waiting for that mREIT discount to appear.
    6 Feb, 09:42 PM Reply Like
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