Nov. 26, 2013, 1:54 PM
- At what point do you just liquidate the portfolio? Habits die hard and traders used to hitting the sell button on the mREITs (REM -0.5%) are doing so again today even as interest rates slide a bit.
- Hitting another multi-year low today, Annaly (NLY -1.3%) - with a portfolio of very liquid assets heavily hedged against rising rates - is now selling for 20% less than September 30's reported book value.
- American Capital Agency (AGNC -0.8%) - with an equally liquid hedged portfolio - is also at about a 20% discount. Previous: CIO Kain promises to continue buybacks at this discounted level.
- Other agency players: Hatteras (HTS -1%), CYS (CYS -1.4%), Capstead (CMO -1%).
- Non-agency mREITs are slipping as well - even as Case-Shiller reports continued solid gains in home prices (which should boost portfolio values). Two Harbors (TWO -1.5%), MFA (MFA -1.4%), Western Asset (WMC -1.1%).
- ETFs: MORT, MORL
Nov. 22, 2013, 3:11 PM
- A nice backup in rates (the 10-year Treasury yield is off 4 bps to 2.75%) is of no help to the mortgage REITs (REM -0.3%), with sector kingpins Annaly (NLY -1.4%) and American Capital Agency (AGNC -1.2%) both hunkered down (NLY earnings call, AGNC earnings call) for the Fed taper, and both hitting 52-week lows today.
- Earlier this week, AGNC and MTGE CIO Gary Kain took his case all the way to Asia at the Citi financial services conference in Hong Kong (transcript). Yes, book value has been hit by higher rates, but also by how much the market is willing to pay for it. Whereas AGNC traded at an average of 110%-120% of book over the past 4-5 years, it's now at sub-90%.
- Discounts can last for awhile, he admits, but also reminds this isn't some opaque bank balance sheet, but instead an easily valued, highly liquid portfolio of assets trading at $0.85-$0.90 on the dollar. As long as it persists, American Capital will continue selling MBS for $1 and buying back stock at a discount.
- Previous: Kain makes a similar case
- Related ETFs: MORT, MORL
- Other sector stocks: Armour (ARR), Two Harbors (TWO -0.8%), CYS (CYS +0.1%), AG Mortgage (MITT -0.5%)
Nov. 14, 2013, 8:36 AM
- Gary Kain's co-chief investment officer at American Capital Mortgage (MTGE) - Jeff Winkler - has resigned from the company, effective yesterday.
- The entire mREIT (REM) industry has struggled this year, particularly MTGE and cousin American Capital Agency (AGNC), which - for the moment - have given up the management premiums they used to enjoy.
- SEC Form 8-K
Nov. 13, 2013, 3:57 PM
- When agency mREITs trade at discounts to book value, it's a lot different than a bank or insurance company trading at a discount, says American Capital Agency (AGNC +1.6%) CIO Gary Kain, speaking at the BofA financial services conference (transcript) (slides). Why? Because the assets held at an agency REIT are fairly easy to mark, and they're easy/liquid to trade. The benefit of selling mortgages and buying back stock is pretty clear.
- "We stressed on our call that we ... clearly believe that we should be buying back stock in an environment such as this and taking advantage of the liquidity of our assets ... We will continue to pay a lot of attention to the ability to monetize price to book discount," not just at AGNC, but at American Capital Mortgage (MTGE +0.5%).
Nov. 11, 2013, 4:28 PM
- After Q2's shock, earnings maximization turned to book value preservation, says Nomura's Bill Carcache, but the market isn't rewarding management teams for this at the moment. "We have no confidence getting back in now in hopes that shares will begin their climb back toward book value ... 30-year MBS is not an asset class we want to own ahead of [tapering]."
- Hedge books may offer some protection, he says, but at quarter-end American Capital Agency (AGNC -1.8%), Annaly (NLY -2.3%), and CYS Investments (CYS -0.5%) held 43%, 80%, and 42% of their portfolios in 30-year MBS, respectively.
- American Capital is of particular interest given the "management premium" its CIO Gary Kain has enjoyed. "This quarter’s review made it clear to us that traditional active managers have no edge and are holding back to see how the mortgage market reacts to Fed tapering." Ouch.
- Given the above, Nomura thinks a 15% discount to book value is entirely appropriate for the agency players and lowers its price target accordingly on AGNC and NLY. CYS has its price target nudged higher as it's already below 85% of book.
- Earlier today: Annaly de-levered and heavily hedged.
- Previous: AGNC's Kain hunkers down.
- Previous: CYS's Kevin Grant is perhaps a bit more aggressive.
- Relevant ETFs: REM, MORT, MORL.
Nov. 8, 2013, 9:51 AM
- Sharply higher interest rates has a number of mREITs (REM -2.4%) hitting new 52-week lows. Most of the stocks were already on the defensive over the past few sessions following near-universally disappointing Q3 results.
- Annaly (NLY -3.3%), American Capital (AGNC -2.9%), (MTGE -2.5%), Armour (ARR -3.7%), Invesco (IVR -3%), CYS Investments (CYS -5.3%), Hatteras (HTS -3%).
- Other related ETFs: MORT, MORL.
- Earlier: Big beat on jobs number sends Treasury prices south.
Oct. 29, 2013, 3:23 PM
- "A good quarter, all things considered," says Nomura's Bill Carcache, maintaining his Hold rating and $22 price target on American Capital Agency (AGNC -8.7%) after Q3 results. Carcache seems copacetic with CIO Kain's defensive stance - a view not shared by all, judging by the earnings call and the direction of the stock today.
- KBW, meanwhile, maintains its Buy rating, but cuts the price target to $25.50 from $27. The team sees Kain loosening up on his "fully hedged" stance and lifting earnings power "north of the $0.80 dividend."
- You take what you get when you buy an actively managed mREIT like AGNC, says Nomura. Some quarters are going to be terrific, and others - like Q3 - will have a ton of activity with little to show for it.
- AGNC continues to be a major drag on the sector (REM -3.7%). Other names: Two Harbors (TWO -2.6%), Hatteras (HTS -2.9%), Anworth (ANH -3.8%), Western Asset (WMC -2.6%), Ellington (EFC -1.9%), (EARN -3%), AG Mortgage Investment (MITT -5.1%), Apollo Residential (AMTG -4.9%).
Oct. 29, 2013, 11:43 AM
- While the near-term outlook for MBS is very Fed-dependent, longer-term the picture is far clearer, says American Capital Agency (AGNC -8.5%) CIO Gary Kain on the earnings call. Looking 2-5 years out, the Fed will no longer be the gorilla in the MBS market, and banks (due to capital requirements) will also be less present. The result will be far better ROE on new investments. "We want to be sure that we have substantial capital to put to work in that environment."
- CC webcast and presentation slides here.
- Short-term, Kain sees taxable income likely to remain under pressure in Q4 as portfolio repositioning will require security sales and the booking of losses. He reiterates the company's intention to continue to buy back shares as long as they remain substantially under book value. The current price is about a 13% discount (growing as call goes on) to September 30 reported book value of $25.27.
- No one's asked about the dividend, but management's apparent commitment to continue to hunker down suggests a cut is coming. Why are you playing defense, asks one call participant who disagrees with the company's near-certainty that the taper is coming. Management gets paid to create alpha, he says, not clip coupons. Kain's response: What happens if you're holding 30-year paper and the December employment report comes in strong?
- Q3 results from last night.
Oct. 29, 2013, 9:20 AM
- The first post-earnings downgrade for American Capital Agency (AGNC) comes from BAML, which removes its Buy rating. The quick take from the company's results (reported last night) shows CIO Gary Kain lightening up the portfolio and shortening duration just as the bond market was set to reverse course and move sharply higher. Today's 11 ET conference call should prove a worthy listen. AGNC -4.7% premarket.
- Armour Residential results show pretty much the same thing, with the book dropping to $16.7B from $22.6B a quarter earlier. ARR -4.1%.
- Other agency players premarket: Annaly (NLY) -1.9%, CYS Investments (CYS) -0.8%.
- Kain's non-agency vehicle: American Capital Mortgage (MTGE) -4.3%.
- ETFs: REM -0.6%. Also: MORT, MORL.
Oct. 28, 2013, 4:18 PM
- Adding in "other comprehensive income" such as net unrealized gains on marked-to-market investments yields $0.45 comprehensive income per share. Q2 dividend was $0.80 per share. Estimated undistributed taxable income falls to $0.57 per share from $1.07.
- Book value per share of $25.27 off 0.9% from $25.51 at the end of Q2, and vs. this afternoon's close of $23.89, putting the shares at a 5.5% discount.
- Net interest spread of 1.20% is down 29 basis points from Q2. Including estimated TBA dollar roll income/loss, net interest spread of 1.14% is off 72 bps from Q2.
- $77.8B portfolio at end of quarter with 7.2x "at risk" leverage, down from 8.5x at end of Q2.
- CIO Kain: "We continued to migrate the portfolio into shorter maturity securities, lowered leverage somewhat, and maintained relatively high hedge ratios ... We have gradually been increasing our duration gap and begun to transition in the direction of a more normal balance between risk and return."
- 11.9M shares repurchased during Q at average price of $22.16 each - an approximate 13% discount to net book value.
- Q3 results, press release.
- Earnings call tomorrow at 11 ET.
- AGNC -4.8% AH.
Oct. 28, 2013, 4:05 PM
Oct. 28, 2013, 4:31 AM
- The New York Fed has reportedly been taking a "deep dive" into banks' exposure to mortgage real estate investment trusts (MReits) (REM), which fund acquisitions of long-term mortgages with short-term repo borrowings.
- The fear is that a rapid increase in interest rates could force the MReits to quickly cut their holdings of mortgage-backed securities (MBS) and spark a wider sell-off.
- The vehicles have proliferated since the financial crisis, and have raised their holdings or MBSs to $460B at the end of March from $160B in 2009.
- News of the Fed scrutiny comes after the IMF argued earlier this month that MReits pose systemic risk and called for boosted regulation of the sector.
- MReit giants include Annaly (NLY) and American Capital (AGNC).
- Related ETFs: MORT, MORL.
Oct. 28, 2013, 12:10 AM
Oct. 27, 2013, 5:35 PM
Oct. 22, 2013, 12:50 PM
- Throwing a small party in wake of the slow jobs number and resultant tumble in interest rates is the mREIT sector (REM +1.5%). The stocks were mercilessly punished all late spring and summer as interest rates rose, but have regained their footing since about September. The 10-year Treasury yield is at a 3-month low of 2.53%.
- Sector giants American Capital (AGNC +2%) and Annaly (NLY +1.5%) are now up about 15% from their 52-week lows set a couple of months ago.
- Sector fans will recall the stocks getting hit late in 2012 over fears rates - rate spreads, actually - were too low for the companies to earn any return on. With the taper off the table, will those worries return? Tough business.
- Other big movers today: Invesco (IVR +2.6%), Hatteras (HTS +2.9%), CYS (CYS +2.8%), Anworth (ANH +4.7%), New York Mortgage (NYMT +1.5%), Western Asset (WMC +1.1%).
- Other ETFs: MORT, MORL.
Oct. 9, 2013, 9:16 AM
- The IMF finds another corner of the universe into which to insert its expertise, now opining that mortgage REITs (REM) pose systemic risk and calling for boosted regulation of the sector.
- The agency worries (as have others) about a cycle of rising rates forcing repo market disruptions, forcing MBS sales, forcing even higher rates, and crunching the recovering housing market. The IMF wants tighter oversight of not just the REITs, but of their financiers in the repo market.
- Regulators might even consider designating the largest of the mREITs as systemically important and thus subject to even more oversight, says the IMF, sending a shiver through the sector giants Annaly (NLY) and American Capital (AGNC).
- Related ETFs: MORT, MORL.
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