investec • Fri, Oct. 31
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CYS Earns Neutral Thesis With Its Defensive Approachinvestec • Fri, Oct. 31
- CYS has not been able to take advantage of lower interest rate scenario.
- High hedging cost and low dollar income have lowered estimate of core EPS and dollar income to $0.30 per share.
- Company has taken right steps by increasing portfolio allocation to high-yielding 30-year MBS in the third quarter.
13.45% Dividend CYS Investments Put In A Ho-Hum Q3; But It Still Pays A Still Great Dividend
- CYS reported a slight book value loss from $10.31 to $10.14 (or $0.17 per share). This was largely expected.
- CYS declared a $0.30 per share dividend for Q3. This was down slightly from the $0.32 per share dividend in Q2 2014. The dividend is still great at 13.45% annually.
- The 10 year US Treasury Note yield has fallen -27 bps from Q3E 2014 to October 22, 2014. This means a book value gain thus far in Q4 2014.
- CYS sees a small 1.6% decline in book value for Q3 2014 to $10.14.
- Core income plus drop income declines two pennies to $0.31 per share.
- These results are likely due to CYS increasing its hedges during the quarter.
- At current prices, CYS yields 13.40% and trades at a 12% discount to book value.
- I remain bullish CYS and the mREIT sector overall due to the large yields offered and discounts to book value.
Update: CYS Investments Reports Q3 Earnings - The Good, The Bad And The Ugly
- CYS Investments just reported Q3 earnings, which had few strengths and saw multiple key metrics worsen quarter-over-quarter.
- I recently opined that CYS was to be avoided in favor of AGNC, NLY and WMC, as CYS' performance was a concern.
- The present news reinforces my outlook of CYS relative to its competitors, and has turned me from neutral to bearish on CYS.
Oversold, 14% Dividend Payer CYS Investments Looks Attractive
- CYS had a total economic return of 9.8% for Q2 2014 alone (dividend + book value gain).
- CYS likely lost a small amount of book value in Q3 2014, but it will still pay its great dividend.
- The spike in bond yields (fall in bond prices) was short lived; and they have now retraced. This makes CYS a much safer investment.
Move On CYS Investments' Quarterly Dividend, 13% Yield And Future Opportunity
- Dividend payout dropped from $0.32 to $0.30 for the quarter, but within the REIT requirement of 90%.
- The book price has steadily risen to $10.31, $0.63 over first quarter 2014.
- 2015 may be the year of interest rate increases, but the future will bring stock price appreciations and bigger dividends.
- CYS declares a $0.30 per share quarterly dividend,.
- This is a small decrease from last quarter’s dividend of $0.32 per share.
- The decrease may be a result of weakening net interest margins in the MBS market.
- I remain bullish CYS due to its large discount to book value and robust yield.
- Move to increase exposure to high yield agency MBS will improve asset portfolio yield and net interest spread.
- Increase in swaps exposure will provide better cash flow hedge for CYS.
- Repositioning of investment and hedge portfolio will protect book value and portend well for valuations.
CYS Fails To Deliver In Q2 Earnings; Defensive Portfolio Approach Earns Neutral Rating
- Company needs to give up defensive approach and divert its resources to high yielding assets.
- Initiatives need to be taken to enhance asset yield.
- CYS should also re-structure its hedged positions according to labor market conditions.
Update: CYS Investments Earnings - Posts A Massive Book Value Increase
- CYS Investments sees a large 7% Q/Q increase in book value for Q2 2014.
- Core income also held steady, likely meaning no need for a dividend cut.
- As I noted in a previous article, CYS bottomed late last year and should start trading closer to its book value of $10.31 per share.
- I remain bullish CYS and the mREIT sector overall with a few exceptions.
CYS Investments' Large Book Value Gain In Q2 Bodes Well For Annaly Capital Management
- CYS reported a book value gain of +$0.63 for Q2 2014. It had a dividend of $0.32 per common share (14.2% annually).
- CYS had a total economic return for Q2 2014 alone of $0.95 per common share or +9.81%.
- NLY should have a book value gain too for Q2 2014. This article goes over the details.
Sustainable High Dividend Yield Attracts Investors To CYS Despite Worrying Strategies
- Neutral thesis on CYS due to weak growth prospects given its high exposure in agency RMBS.
- Defensive approach needs to be better managed to tackle interest rate scenario.
- Company needs to diversify portfolio mix to enhance asset yield.
Double-Digit Return On CYS Investments Even Better
- CYS to pay dividend on July 16, 2014.
- Dividend return 14% and opportunity to receive better return.
- CYS stock price is down, and now is a great buy-in opportunity.
- Interest Rate Risk effects and profitability.
13.9% Div. CYS Investments And 18.4% Div. Western Asset Mortgage Capital Are Winning Their Bets
- Both CYS and WMC employed strategies in Q2 2014 that would perform well if interest rates went down.
- 10 year US Treasury Note yields as of June 19, 2014 were down -11 bps since March 31, 2014.
- CYS pays a 13.9% dividend, and WMC pays an 18.4% dividend. How reliable are these?
- What risks are CYS and WMC taking to outperform most other primarily Agency mortgage REITs?
CYS Investments: Another REIT With Core Earnings Up And Increasing Book Price
- We anticipate strong dividend for the second quarter.
- We anticipate stock price will continue to appreciate through 2014.
- It has seen its book value increase, and is still at discount of .93.
- CYS Investments remains the highest dividend paying company in the industry; paying nearly 15% in dividends annually.
- CYS was on another level in the first quarter, posting the best economic returns.
- CYS remains undervalued, trading at 90% of book.
- CYS reduced leverage, but still had an interest rate spread net of hedge, including drop income of 1.89%.
American Capital And CYS Both Posted Great Q1 2014 Results - CYS Seems To Have Led The Way
- CYS had a Q1 2014 economic return of 8.2%. This was comprised of a $0.32 per share dividend and a $0.44 increase in book value.
- AGNC had a Q1 2014 economic return of 5.1%. This was comprised of a $0.65 per share dividend and a $0.56 increase in book value.
- CYS ended Q1 2014 with leverage of 6.32x. It had a net interest rate spread of 1.89% and a CPR of 5.6% for Q1.
- AGNC ended Q1 2014 with leverage of 7.6x. It had a net interest rate spread of 1.43% and a CPR of 7.0% for Q1.
- CYS beat AGNC in performance in Q1 2014, but AGNC may be significantly safer.
CYS Investments: Potential Total Return Of 20% Makes An Ideal Buy
- High dividend yield of 14.3% and price appreciation of 5% other key factors for bullish thesis on company.
- CYS protecting its book value by increasing its exposure to 15-year fixed rate assets in favor of 30-year fixed rate assets.
- Share buybacks undertaken by company also likely to portend well for earnings and book value.
Thu, Jan. 30, 10:20 AM
- You're seeing a lot of demand in the assets we hold, says Capstead Mortgage (CMO +1.5%) management on the conference call after reporting a blowout Q4. In a steepening yield curve environment - the short-end anchored while long rates move higher - Capstead is benefitting from tightening spreads in the 5/1 ARMs it mostly holds.
- Mr. Market seems to have fleshed this out, and Capstead was already trading for right around book value (reported at $12.47 as of Dec. 31) vs. the double-digit discounts for long-end players like Annaly (NLY +0.2%), American Capital (AGNC -0.3%), Armour (ARR), and CYS Investments (CYS -0.5%).
- Another in the adjustable-rate arena is Hatteras Financial (HTS +1.5%).
- Related ETFs: REM, MORT, MORL
Thu, Jan. 23, 2:23 PM
- One sector nearly fully in the green on a big down day for the broad averages is the mortgage REITs (REM +0.6%) as investors - worried about further declines in book value - take comfort from a big 10 basis point dip in the 10-year Treasury yield to 2.76% (off from 3% at the start of the year).
- Leading are CYS Investments (CYS +3.1%), Annaly (NLY +1.7%), American Capital (AGNC +1.4%), (MTGE +1.5%), Invesco (IVR +1.8%), Anworth (ANH +1.3%), and AG Mortgage Investment (MITT +0.7%). The sector elephants - Annaly and American Capital Agency - are head 6% and 8% YTD, respectively.
- With the big drop in yields at the long end, how long will it be before investors stop fretting about declines in book value and shift to concern over narrowing spreads!
- Related ETFs: MORT, MORL
Mon, Jan. 13, 3:08 PM
- What might pull the mREIT sector out of its brutal slump? A slide in the broad equity market for one. An out of nowhere 1%-plus dive in the major averages is being felt in the bond market, where the 10-year yield is off another 3 basis points to 2.83%, and mortgage REITs (REM +0.4%) - whose book values have been savaged by the big jump in interest rates since last spring - are responding.
- Annaly (NLY +1.2%), American Capital (AGNC +1.4%), (MTGE +1.1%), Two Harbors (TWO +1.4%), CYS (CYS +1.9%), Western Asset (WMC +1.5%), AG Mortgage (MITT +1.1%), and Ellington Residential (EARN +0.8%) are leading. This just in: Sector giants American Capital Agency and Annaly are ahead 6% and 4% YTD, respectively.
- The iShares 20+ Year Treasury Bond ETF (TLT +0.6%) is up 3.2% for the year.
Fri, Jan. 10, 11:18 AM
- It's a big dip in interest rates today (the 10-year yield off 8 bps to 2.88%), but buyers are doing little more than tiptoeing back into beaten-down mortgage REITs.
- Leading are Annaly (NLY +1.3%) and American Capital (AGNC +1.4%), (MTGE +1.1%), and Armour (ARR +0.7%), CYS Investments (CYS +1.2%), and Invesco (IVR +1.1%) are also posting decent gains. All are quietly up in the area of 5-10% off of their 52-week lows set late last year.
- Related ETFs: REM, MORT, MORL
Dec. 10, 2013, 11:12 AM
- The mREIT sector (REM +1.2%) is up for a 2nd consecutive day, with Hatteras Financial's (HTS +1.5%) 9% dividend cut overnight not hurting the stock and suggesting maybe a lot of bad news has been priced in. Core income in Q3 was $0.44 per share and the new payout is $0.50.
- Another adjustable-rate mortgage player, CYS Investments (CYS +2.4%) is also ahead, as is Capstead Mortgage (CMO +0.9%). Others: Annaly (NLY +1.5%), American Capital (AGNC +1.7%), Invesco (IVR +2.4%), Western Asset (WMC +1.3%).
- Related ETFs: MORT, MORL
Dec. 6, 2013, 4:23 PM
Dec. 6, 2013, 11:42 AM
- There's a bit of green spreading across the mREIT sector this morning as Treasurys reverse an early plunge following the strong jobs report - the 10-year yield is now off 3 basis points to 2.85% after climbing to 2.93% just after the 8:30 ET release.
- However, there's no relief for sector leaders Annaly (NLY -1%) and American Capital Agency (AGNC -1.5%), both of which continue to reel following Goldman's Sell recommendation yesterday - each have carved out new 52-week lows this morning. There may be plenty of players in the mREIT sector, but for the institutional big boys who have the Goldman report on their desks, there's just NLY and AGNC. Others in the red include: Armour (ARR -0.7%) and CYS Investments (CYS -1.1%).
- Posting gains: Chimera (CIM +0.8%), Invesco (IVR +0.2%), Hatteras (HTS +0.2%), Dynex (DX +0.7%), New York Mortgage (NYMT +0.3%), Apollo Residential (AMTG +0.7%), Javelin (JMI +1.1%), AG Mortgage Investment (MITT +2.3%).
- Related ETFs: REM, MORT, MORL.
Dec. 5, 2013, 1:17 PM
- A check of the mortgage REITs following Goldman's interestingly-timed initiation of Annaly (NLY -1.6%) and American Capital Mortgage (AGNC -1.1%) with Sells finds the sector (REM -0.8%) again underperforming the broad market.
- To review: Annaly is off about 40% in 8 months and American Capital is off about 42% in 7 months. Yes, higher interest rates have delivered a hit to their portfolios (which tend to be longish in duration), but investor distaste for the names also has both trading at roughly 20% discounts to their book values.
- So is the call late? Maybe. On the other hand, one well-known hedge funder defines a 50% loss as holding a stock that goes from being down 80% to being down 90%.
- Other names of interest: CYS Investments (CYS -0.4%), Western Asset (WMC -1%).
- Related ETFs: MORT, MORL
Dec. 2, 2013, 3:48 PM
- There's no mercy for the mREIT sector (REM -1.6%) as this morning's strong economic data sends the 10-year Treasury yield five basis points higher to 2.80%. Among the new 52-week lows today are sector giants Annaly (NLY -1.6%) and American Capital Agency (AGNC -1.8%).
- Also down sharply are Armour (ARR -2.4%), CYS Investments (CYS -2.4%), Dynex (DX -2.5%), American Capital Mortgage (MTGE -2.8%), AG Mortgage (MITT -2.4%), and Arlington Asset (AI -3.1%).
- Management matters, and investors have clearly lost some faith in the leadership of Annaly and American Capital - both of which trade at more than 20% discounts to book value. The newest favorite is that of Ellington Financial (EFC), where management has mostly been able to preserve book value this year. Company structure may have helped too - Ellington is a partnership, not a REIT and has somewhat more flexibility with its portfolio. The stock trades at just a 6% discount to October 31 reported book.
- ETFs: MORT, MORL
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. 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, 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. 25, 2013, 8:02 AM
- CYS Investments (CYS) looks to continue a nice post-earnings run after Bank of America removes its Sell rating on the stock and boosts the price target to $8.50.
- The company last week reported September 30 net asset value of $10.10 per share and this is the 2nd upgrade since.
- Q3 results, earnings call report.
- Shares +0.35% premarket to $8.71.
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.
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