Annaly Capital: Superior Hedging Strategy, But Not All Risks Can Be Avoided

Sep. 14, 2021 9:51 AM ETAnnaly Capital Management, Inc. (NLY)9 Comments
Harrison Schwartz profile picture
Harrison Schwartz
13.42K Followers

Summary

  • Mortgage REITs have become highly popular in recent months as investors have poured money into high-yield stocks.
  • Some mortgage REITs are better than others, depending primarily on their risk hedging strategy.
  • Annaly's recent efforts to expand its mortgage servicing right platform significantly reduce its downside risk that may come from Federal Reserve tapering.
  • While Annaly has a superior risk profile, the potential popping of the real estate bubble may still create credit risk issues.

Real estate concept
Sezeryadigar/iStock via Getty Images

The current market regime has created tremendous changes to the "risk and reward" environment in virtually all financial assets. There has been an immense increase in liquidity supply as investors have poured their remaining cash reserves

Federal Reserve Easing and 30 year mortgage rate
Data by YCharts

Annaly Capital Hedging Strategy
Data by YCharts

This article was written by

Harrison Schwartz profile picture
13.42K Followers
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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