Seeking Alpha

Banks and life insurers welcome hawkish Fed lean; mREITs not so much

  • A check of sectors following the FOMC statement and updated projections suggesting a quickened pace of rate hikes in the future finds the banks and life insurers notably moving higher. Both groups have struggled earning a spread amid ZIRP and are positively levered to higher rates.
  • Lenders: Bank of America (BAC +1%), Citigroup (C +1%), JPMorgan (JPM), Regions (RF +1.7%), KeyCorp (KEY +0.9%), SunTrust (STI +0.7%).
  • Life insurers: MetLife (MET +1%), Prudential (PRU +0.7%), Lincoln National (LNC +1%).
  • Not necessarily positively levered to higher rates are the mortgage REITs (REM -1.6%): Annaly (NLY -1.8%), American Capital (AGNC -1.7%), (MTGE -1.9%), Armour (ARR -1.3%), Two Harbors (TWO -2%) CYS Investments (CYS -3.3%), Capstead (CMO -1.3%), MFA (MFA -1.8%).
  • Related ETFs: MORT, MORL
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Comments (14)
  • jraskib
    , contributor
    Comments (336) | Send Message
    interest rate increase will be very slow, not to affect negatively the economy. REITs (and mREITs) will be able to adjust. Don't be scared.
    19 Mar, 04:16 PM Reply Like
  • vic3842
    , contributor
    Comments (5) | Send Message
    I agree with jraskib. FED can not push the rates up at a quick pace due to the state of our economy.
    19 Mar, 05:26 PM Reply Like
  • newnnly
    , contributor
    Comments (246) | Send Message
    Agreed. If anything the guidance favors consideration for the "real" jobless numbers. Not the absurd 6.5% rate which has nothing to do with real numbers. At any rate; the mREITs have learned quite a bit in the last year in positioning portfolios around these ridiculous knee jerk Fed decisions. They will keep going up. IMHO
    19 Mar, 05:59 PM Reply Like
  • MichaelJ8
    , contributor
    Comments (674) | Send Message
    yeap agreed. Long TWO. Looking to add soon.
    19 Mar, 08:33 PM Reply Like
  • Hungry for Knowledge
    , contributor
    Comments (367) | Send Message
    I love mREITs in a rising rate environment. By the time short term rates rise, the long rates will be substantially higher, allowing mREITs to maintain larger spreads. Courage, friends. Step in and buy.
    19 Mar, 10:25 PM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
    What about their existing portfolios at the time?
    19 Mar, 10:42 PM Reply Like
  • Hungry for Knowledge
    , contributor
    Comments (367) | Send Message
    I don't care about their existing portfolios because I've not owned them until now. I look at fully valued asset classes (like mREITs until last summer) like I look at new cars - there ain't no way I'm buying one, because the value can only go down.
    My entire investing premise is based on only buying dividend paying asset classes that have crashed 35%+. mREITs fit the bill now. I've been buying other asset classes for years (coal, natural gas most recently) due their recent problems and future opportunities.
    So, I've not been hurt with the recent mREIT drop due to book value losses.
    Look at the 15 year chart of NLY and trace the low points to problems in the economy, or increases in Fed interest rates in 2006. It is now time to buy them and their brethren.


    I will also say it APPEARS that mREITs provide the bond-like diversification we crave in market downturns, as at least their share prices don't seem to drop below their 2004/2005 lows when 2009 hit. I think looking at their drop from the 2008 highs as not accurate, as we're not buying right now at a high point.
    I hope that helps!
    20 Mar, 01:49 PM Reply Like
  • notta lackey
    , contributor
    Comments (131) | Send Message
    Actually, we own a few but got rid of the long duration ones. My fear is that the managers will zig (go long term) when hindsight would tell them to zag, but with 15-30% discounts to book, there is a huge cushion. Nevertheless, we have limit orders well out of the money to sell if they get near book.
    22 Mar, 01:19 PM Reply Like
  • dt911
    , contributor
    Comments (6) | Send Message
    LONG TWO AGNC NLY HTS NYMT ARR... worth buying there on dips.. GL
    20 Mar, 03:50 AM Reply Like
  • dt911
    , contributor
    Comments (6) | Send Message
    Long TWO AGNC NLY ARR NYMT the best survivors out there..
    20 Mar, 03:50 AM Reply Like
  • roncor
    , contributor
    Comments (9) | Send Message
    I don't know why everyone gets so negative about the Fed raising rates. They would do that because the economy is improving; which is very bullish across the board.
    20 Mar, 07:42 AM Reply Like
  • tstreet
    , contributor
    Comments (746) | Send Message
    The comments above seem rational unless you consider what happened last time we had a big rise in rates. Glad everyone here seems so optimistic. However, history doesn't give me much cause for optimism. Wonder what the managers of companies like AGNC are thinking about now.
    20 Mar, 10:30 AM Reply Like
  • Billandzula
    , contributor
    Comments (2) | Send Message
    Looks like another buying opportunity to me! Take advantage of the dips.
    20 Mar, 01:25 PM Reply Like
  • starcorral
    , contributor
    Comments (525) | Send Message
    Excuse me - I do not understand. Since the 3rd Q drop in 2013, I've been hoping the Fed would start backing off so that my REITS could start growing. Well my REITS are responding favorably as I had hoped. So - I really don't understand.


    What I do understand is that is that a bank is like a dog; it will eat drink and crap more as you feed it more food and water. All the Fed is doing is telling the banks 24 /7 chow time is going away; it is time to work [like the rest of us do] for a living. I believe Dynex and MFA are - uh - on board.
    20 Mar, 10:53 PM Reply Like
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