Hatteras not a fan of Kain strategy


Perhaps taking a dig at American Capital's (AGNC +0.3%), (MTGE +1.4%) Gary Kain, Hatteras (HTS +2.3%) management - speaking on the earnings call - says it's not buying up any shares of other mortgage REITs because it would then lose control of the hedging.

Kain (actually the two mREITs of which he is CIO), of course, is now an owner of Hatteras, disclosing last week an 8.5% stake in the company amid his decision to buy up the common stock of agency REITs while they're trading at significant discounts to book value.

Earlier: Interest margins on the rise at Hatteras as prepayments slide.

Comments (16)
  • REIT Analyst
    , contributor
    Comments (500) | Send Message
     
    This argument that they would lose control of the hedging is BS. As if hedges changed significantly in an unpredictable manner.
    12 Feb 2014, 11:31 AM Reply Like
  • Dividends#1
    , contributor
    Comments (4330) | Send Message
     
    Hi REIT,

     

    Beautifully stated. Your viewpoint is always appreciated. There are too many misinformed investors here, so anytime I see you make a comment it gives me a good dose of reality.
    I am hoping you write another article on AGNC and their current portfolio and strategy as you see.
    12 Feb 2014, 12:44 PM Reply Like
  • Michael Spacey
    , contributor
    Comments (150) | Send Message
     
    I think there's some merit to the argument of losing hedging control. There's a lot of decision up to the PM's discretion right? How much duration risk you want to take, which hedging instrument, how much basis risk to take...etc. For example Cain talked about increasing their duration gap this quarter - he would have no control how Hatteras does it
    13 Feb 2014, 12:38 AM Reply Like
  • COBeeMan
    , contributor
    Comments (2979) | Send Message
     
    I don't think Kain cares about that level of detail for these relatively minor investments in other mREITs. I think it is much more simple. He believes the mREITs bottomed and he bought the 20% discount. He will now collect their dividend and then sell at a nice profit when BV is at a premium. It is that simple. It is an example of how all of us should be investing in mREITs.
    13 Feb 2014, 10:12 AM Reply Like
  • Dividends#1
    , contributor
    Comments (4330) | Send Message
     
    COBeeMan,

     

    Very good comment. So many here over think the stock market, and distrust management.
    13 Feb 2014, 11:35 AM Reply Like
  • PeterScriabin
    , contributor
    Comments (363) | Send Message
     
    That's like a wholesaler of dairy products refusing to buy up a warehouse full of cheese at 20% off normal prices, because statistics show that 1 or 2 percent of the cheese in such inventories goes off before it can be brought to market.
    12 Feb 2014, 11:37 AM Reply Like
  • wilsonta
    , contributor
    Comments (12) | Send Message
     
    AGNC is moving into the ETF biz
    12 Feb 2014, 12:08 PM Reply Like
  • RoberHD05
    , contributor
    Comments (105) | Send Message
     
    With an 8.5% share in Hatteras, does that mean the Mr. Kain can get a seat on the BoD?
    12 Feb 2014, 12:21 PM Reply Like
  • tstreet
    , contributor
    Comments (1035) | Send Message
     
    AGNC average performance per year for 5 years without dividend reinvested 22.76%
    HTS performance 8.88%

     

    This makes we want to invest in AGNC vs HTS. On the other hand, Kain appears to have some confidence in HTS over the short run.

     

    Hatteras management is just stating its position. Whether they are taking a dig or not is just speculation on the part of whoever wrote this article.
    12 Feb 2014, 12:27 PM Reply Like
  • Dividends#1
    , contributor
    Comments (4330) | Send Message
     
    tstreet,

     

    You call this an article? AGNC is best of breed, Kain bought shares in HTS at a 20% or more discount, now the discount has decreased. AGNC is now probably trading at a 12% or so discount to BV, give or take. My point is Kain took action when a profit was to be made, HTS did not and the bargain price is gone.

     

    This blurb, I am assuming is written by the SA editors in order to create controversy. Just my guess here.
    12 Feb 2014, 12:40 PM Reply Like
  • tstreet
    , contributor
    Comments (1035) | Send Message
     
    Yeh. Blurb. Much better. Wasn't sure what to call it. Yes, Kain made a shrewd move which has caused some analysts to get their knickers in a twist.
    12 Feb 2014, 01:12 PM Reply Like
  • COBeeMan
    , contributor
    Comments (2979) | Send Message
     
    Maybe HTS is just jealous because they didn't think of the strategy first, and now it is too late. :)
    I think Kain's confidence comes from the transparency of HTS and believing HTS' (and selected others) BV will quickly return, at which time AGNC will sell HTS (which will not make HTS any happier).
    12 Feb 2014, 12:42 PM Reply Like
  • tstreet
    , contributor
    Comments (1035) | Send Message
     
    I don't think you can read anything into HTS action other than the fact that they do not think buying stock of other MREITs is a good move. In any event, a lot of the discount has already evaporated. Of course, none of us have control over the hedging; we can only trust or not the ability of people like Kain to make the proper hedges. And he will not always be right because the bond market is always going to have some uncertainty.
    12 Feb 2014, 01:17 PM Reply Like
  • Javimanic
    , contributor
    Comments (293) | Send Message
     
    does Kain sleep well?...his confidence must be staggering and very admirable.
    12 Feb 2014, 12:52 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (4309) | Send Message
     
    Surprised no one has mentioned that AGNC could decide to take over / merge with HTS. It would quickly add a large chunk of adjustables to AGNCs book at a significant discount and they could probably cut some costs (though not to shareholders as they are paid via fee).

     

    I don't think this is likely but I mention it because it is at least a possibility.
    12 Feb 2014, 01:13 PM Reply Like
  • COBeeMan
    , contributor
    Comments (2979) | Send Message
     
    Interesting thought!
    12 Feb 2014, 01:26 PM Reply Like
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