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MORL vs. ETF Alternatives
The ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSE: MORL) ("MORL" or the "ETN") is an exchange-traded note linked to the monthly compounded 2x leveraged performance of the Market Vectors® Global Mortgage REITs Index (the "Index"), reduced by the Accrued Fees. MORL is listed on the NYSE Arca exchange, is denominated in USD, and pays a USD-denominated variable monthly coupon linked to 2 times the cash distributions, if any, on the Index constituents, less any withholding taxes.
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Country: United States
Tuesday, Dec 105:33 PMGundlach reiterates bullish MBS call
Tuesday, Dec 105:33 PM| 3 Comments
- Rising interest rates have killed refinancing - eliminating prepayment risk - and home prices continue to move higher, a particularly bullish cocktail for non-agency MBS, says Gundlach (DBL, DSL), who finds those securities vastly more attractive than high-yield paper (HYG, JNK).
- Asked about Annaly (NLY) - an owner of agency MBS - Gundlach says he likes it and likes its management, but won't be buyer until after the dividend is cut to something more in line with what core earnings might be.
- "Something for Nothing" slides and webcast
- Non-agency MBS players include: MTGE, MFA, DX, TWO
- Related mREIT ETFs: REM, MORT, MORL
- High-yield ETFs: HYG, JNK, HYS, HYLD, SJNK, PHB, SJB, ANGL, XOVR, UJB, QLTC, SHYG
- Previous: "Freaking out" about interest rate risk
Tuesday, Dec 1011:12 AMMortgage REITs unfazed by Hatteras dividend cut
Tuesday, Dec 1011:12 AM| 17 Comments
- 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
Monday, Dec 93:50 PMChimera up big on heavy volume
Monday, Dec 93:50 PM| 5 Comments
- The mortgage REIT sector (REM +1.5%) takes a breather from heading south today, but it's a low volume effort, with one exception. Chimera Investment's (CIM +3.3%) volume of 22.7M so far this session compares to an average of 6.8M. One trader observes it's the 3rd consecutive session of heavy activity for the stock.
- Investors still await audited results for 2012 from the company.
- Related ETFs: MORT, MORL
Friday, Dec 611:42 AMMinus sector giants, mREITs head higher
Friday, Dec 611:42 AM| 12 Comments
- 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.
Thursday, Dec 51:17 PMAnnaly and American Capital lead mREIT decline after Sell rating
Thursday, Dec 51:17 PM| 37 Comments
- 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
Thursday, Dec 57:45 AMBells ringing on mortgage REITs? Goldman says Sell
Thursday, Dec 57:45 AM| 60 Comments
- Initiating coverage on the sector giants, Goldman sees both Annaly (NLY) and American Capital Agency (AGNC) as Sells.
- "We expect book value to fall as rates rise and MBS spreads to widen post Fed tapering," says analyst Eric Beardsley, giving NLY a $9.50 price target. With management taking actions to protect said book value such as moving into short-duration assets and boosting hedges, expect more earnings headwinds and dividend cuts of about 40%. An expected dividend of $0.80 per share is an 8% yield based on the current stock price. Total return of 2% over the next year compares to 10% Beardsley expects for the overall mREIT sector (REM).
- It's the same story for AGNC which gets an $18.50 price target. Beardsley expects book value to fall 15% to $21.39 by Q4 next year and the dividend to drop to $2 - a 10% yield based on the current stock price. He sees total return of 4% over the next year, again compared to 10% for the overall sector.
- Related ETFs: MORL, MORT
Monday, Dec 23:48 PMNo bid for mortgage REITS as yields rise
Monday, Dec 23:48 PM| 36 Comments
- 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
Saturday, Nov 309:42 AMGundlach: Time to buy interest rate risk
Saturday, Nov 309:42 AM| 60 Comments
- "People are absolutely freaking out about interest-rate risk," says Jeff Gundlach, sitting down with Robert Shiller to size up the investment landscape. Ever the contrarian, Gundlach suggests last year's 1.4% low in the 10-year Treasury yield could still get taken out. The catalyst? "You never know until after the fact; otherwise, it would be priced in the market. But there is no inflation."
- The see "freaking out" in a picture, check out the price charts of the mortgage REITs, particularly the two proxies for riding the long end of the curve - Annaly (NLY) and American Capital Agency (AGNC). Gundlach: "You can take advantage of pockets of opportunity in what people don't want ... If you're willing to take the interest-rate [risk], you can get yields of 11% in the agency mortgage market."
- Constructive on housing (but not homebuilders), Gundlach is also bullish on non-agency mortgage paper, calling it the cheapest sector in fixed income on a risk-adjusted basis. Fans of also beaten-up non-agency mREITs like American Capital Mortgage (MTGE), MFA Financial, Dynex (DX), and Two Harbors (TWO) may want to take notice.
- Mortgage REIT ETFs: REM, MORT, MORL
- Long-duration Treasury ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, TLH, ZROZ, SBND, DLBS, VGLT, UBT, TLO, LBND, TENZ, TYBS, DLBL
Tuesday, Nov 261:54 PMAnnaly leads more declines in mREITs
Tuesday, Nov 261:54 PM| 44 Comments
- 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
Friday, Nov 223:11 PMMortgage REITs continue to slide
Friday, Nov 223:11 PM| 8 Comments
- 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%)
Wednesday, Nov 1311:15 AMEllington Residential flies post-earnings
Wednesday, Nov 1311:15 AM| Comment!
- The near-indiscriminate selling in mortgage REITs (REM +0.6%) left at least one major bargain as Ellington Residential Mortgage (EARN +10.7%) soars after reporting Q3 core EPS of $0.61 and an increase in book value to $18.80 per share from $18.57 at the end of Q2. This left the stock - prior to today's move - at a whopping 23.7% discount to book.
- The dividend was just $0.50 per share against core earnings of $0.61 - is a special payout coming?
- Ellington Residential is managed by the same crack team which has expertly preserved book value at Ellington Financial (EFC +0.3%), only EFC is a partnership, EARN is a REIT.
- Net interest margin increased 14 bps to 1.77%. The CPR rose to 3.6% from 1.7%.
- Earnings call is just getting underway.
- Press release
- Relevant ETFs: MORT, MORL.
Monday, Nov 114:28 PMCheap mREIT sector could get cheaper
Monday, Nov 114:28 PM| 27 Comments
- 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.
Friday, Nov 89:51 AMMortgage REITs take out new lows post-jobs report
Friday, Nov 89:51 AM| 8 Comments
- 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.
Thursday, Nov 711:10 AMAnnaly management laments Fed's actions
Thursday, Nov 711:10 AM| 5 Comments
- We get it ... you're not a fan of the Fed. The rambling Annaly (NLY -4%) conference call is an exercise for management (and some of the questioners) to complain about the distortions caused by Fed policy and how mortgage markets may blow up as that policy is reversed.
- QE3 is the equivalent of a new $6B mortgage REIT with 6x leverage being formed every month, says CEO Wellington Denehan, who also notes these new mortgage REITs are uneconomic buyers.
- Available later on SA, the transcript should be an interesting read as Denehan and her team muse about the process of trying to figure out this market.
- In the meantime, Annaly shares reprice themselves for what looks to be another dividend cut (payout was $0.35 per share last quarter). The current price of $11.11 per share is a 12.5% discount to September 30 book value of $12.70 - seems about inline compared to much of the rest of the mREIT (REM -0.8%) sector.
- Q3 earnings coverage.
- Q3 presentation slides.
- Related ETFs: MORT, MORL.
Tuesday, Oct 299:20 AMAmerican Capital and Armour results chill mREIT sector
Tuesday, Oct 299:20 AM| 3 Comments
- 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.
Monday, Oct 284:31 AMFed scrutinizes bank exposure to MReits
Monday, Oct 284:31 AM| 4 Comments
- 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.
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