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.
Oct. 8, 2013, 12:09 PM
- Total economic return for mREITs (REM -0.9%) should be positive over the next year, says Credit Suisse, with hybrid/non-agency names faring better than their agency MBS cousins thanks to an expected continued rise in long-term interest rates.
- The team continues to favor two names with less interest rate risk - Two Harbors (TWO -0.8%) and Ellington Financial (EFC -0.4%), as well as those lumped in with mREITs but not really so - Newcastle Investment (NCT -1%), New Residential (NRZ -0.6%), and PennyMac Mortgage (PMT -1.4%).
- Management willingness to buy back shares trading below book value coupled with an ability to protect book value will be the "differentiator of valuation within the group," says Credit Suisse, noting the aggressive repurchases of Gary Kain's AGNC and MTGE.
- Related ETFs: MORT, MORL.
Sep. 26, 2013, 7:54 AM
- JPMorgan initiates coverage on two mREITs, starting Two Harbors (TWO) at a Buy with $10.50 price target and American Capital Agency (AGNC) at Hold with $22 price target.
- Two Harbors, of course, invests in a wider variety of assets and has a good deal of exposure to credit, rather than rates. American Capital, on the other hand, is strictly an agency MBS player.
- AGNC is off 2.5% premarket, but it's just one trade for 102 shares.
Sep. 24, 2013, 2:45 PM
- The mREIT (REM -0.5%) environment has turned favorable, says Maxim's Michael Diana, but non-agency players are his favorites due to less leverage and exposure to higher home prices. His favorite picks:
- Ellington Financial (EFC +1.2%) - a non-REIT which gives it "the ability to hedge and trade on an unrestricted basis [and profit from] volatility." His target price is $28 (Ellington Residential EARN is the REIT version).
- Two Harbors (TWO -0.3%) - “due to substantial non-Agency and hedging expertise, as well as diversification.” The price target is $11.50.
- American Capital Mortgage (MTGE +1.2%) - price target $25.
- Eleven mREITs have cut their dividends this quarter, but pricing below book value still leaves yields high - 13.9% average for agency REITs, and 13.1% for hybrids.
- Other buy-rated mREITs at Maxim: AMTG, DX, AGNC. Hold-rated: MITT, ARR, HTS, JMI.
- Related ETFs: MORT, MORL.
Sep. 20, 2013, 10:22 AM
- The mREIT (REM -1.7%) stocks sink under another wave of hefty dividend cuts overnight, with the sector gorillas Annaly (NLY -2.6%) and American Capital (AGNC -3%) slashing their payouts by 12.5% and 24% respectively. American Capital however, continues buying back its shares at a discount to book value at a fast pace.
- American Capital's non-agency cousin, American Capital Mortgage (MTGE -1.2%) cut its dividend 12.5%, and also continues to retire stock below book value. Western Asset Mortgage (WMC +0.7%) held the line on its dividend.
- Other movers include: Chimera (CIM -1.3%), Hatteras (HTS -1.9%), Capstead (CMO -2.2%), Javelin (JMI -3.3%).
- Relevant ETFs: MORT, MORL.
Sep. 19, 2013, 5:42 PM
- American Capital Agency (AGNC) cuts its dividend by $0.25 to $0.80 per share. Annualized, it's a 13.5% yield based on today's close of $23.79.
- The company also announces it's repurchased 11.9M shares thus far in Q3 - about 3% of the float - at an average price of $22.16.
- Is the dividend cut more than priced in? Share are up marginally AH.
- Press release.
Sep. 19, 2013, 10:24 AM
- Treasury yields snap back to attention after the whopper of a gain in the Philly Fed Index and a strong Existing Home Sales report. At 22.3, the Philly index hit its highest read since March 2011.
- The 10-year Treasury yield is higher by 6 basis points to 2.75%. TLT -0.25% TBT +0.4%.
- Treasury ETFs: TLH, TLT, IEF, DTYL, DLBL, ILTB, TENZ, ITE, TLO, EDV, VGIT, VGLT, TMF, TYD, LBND, UBT, UST, TMV, TYO, DSTJ, DSXJ, SBND, PST, TBT, DTYS, DLBS, TBF, TTT, TYNS, TYBS, TBX.
- There's some popcorn-worthy action in mREIT-land (REM -0.7%) as interest rates rise and several in the sector - Hatteras, Armour, Apollo, Javelin - slashed their dividends in a big way. Other movers include Annalyl (NLY -1.1%) and American Capital (AGNC -1.2%).
- Related ETFs: MORT, MORL.
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