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Tag Archives: mortgage
In today’s hunt for yield mREITs seem to be an increasingly popular choice. The sector offers yields in the range of 13%. With even high yield bonds trading down to yields of ~7% an almost doubling of potential yield is compelling. But have investors chased yield too much and what happens if rates change dramatically? Today I want to do a check on the valuation of mREITs in general and look at the potential impact of changing interest rates on the business. First, lets take a look at valuation. I’ve covered mREIT basics on the blog before so if you’re … Continue reading
How many times a week do you read that interest rates have no where to go but up? That bonds are terrible investments and will be crushed by rising rates? And when was the first time you started to hear these stories? If you read pretty much any source of investment news then you’ve been hearing these stories for almost 4 years now and, at least to me, they seem to be constant. Yesterday the latest one I heard was ‘the bond bubble will pop tomorrow’. Oh dear. Well, today I wanted to provide a counterpoint to all the rising … Continue reading
Its been a hell of a few weeks for mREITs. From the Friday freakout just over one month ago to the recent week’s 5%+ price declines investors are digesting multiple new risks to the mREIT’s businesses. In response to all this valuations for the sector have come down to a level that represents a very positive risk reward setup. First, lets outline the new perceived risks. Nobody has outlined it better than AGNC. In a recent investor presentation they stated: Basically, all these new risks are very very small probabilities, i.e. tail risks. Many of these mREITs have come out … Continue reading
It’s time again to update mREIT earnings results. All of the mREITs that I track have now announced Q2 2011 earnings with MFA finishing up the announcements this morning. Instead of doing separate posts for each of the 7 mREITs on my list I decided to do a summary post for the group. For my previous posts on mREITs see here. First, lets summarize the earnings results for the group. The table below shows my mREIT economic model updated with Q2 2011 numbers. I’ve redone the table to group together the agency REITs and the non-agency REITs for easier comparison. … Continue reading
Yesterday was sure an interesting day for the mortgage REIT (mREIT) market. Early in the morning trade investors seemed to be fleeing mREITs. At one point the biggest mREIT, NLY, traded down 18% from its opening price then came back to close down about 3% for the day. This was a highly unusual move to say the least. Lets take a look what happened and see if we can make sense of it. First, lets take a look at the market’s reaction. The chart below shows the NLY intraday chart. Other mREITs showed similar performances. So, what happened? Basically, one … Continue reading
I thought today would be a good day to discuss the recent Q2 2011 dividend announcements from the mortgage REIT (mREIT) companies that I track. Six out of the seven mREITs I follow have announced their Q2 dividends. For my previous posts on mREITs see here. Also, today the fed announced their latest policy decision which also has a potential impact on mREITs. Lets dive in. For Q2 2011 dividends for mREITs with non-agency exposure were reduced. Both CIM and IVR reduced their dividends for Q2. On the agency side dividends stayed the same with the exception of NLY. NLY … Continue reading
In several previous posts on mortgage REITs (mREITs) I have discussed the basics of understanding them, that there could be a good investment opportunity in them, and I presented an economic model that breaks down their sources of earnings and dividends. Now, its time to address the very important topic of the risk in investing in mREITs and how an investor can gauge and monitor that risk. There are three main sources of risk in mREITs; credit risk, liquidity risk, and interest rate risk. Note, that I do not consider the market’s standard definition of risk, volatility, as a source … Continue reading
I apologize for the hiatus in posting the last few days. We currently have the RV parked in the Gila National Forest in a pretty remote location with no power, no communications. It’s a 23 mile drive down the mountain to the nearest access. Good thing there is a good barbeque place on the way for extra incentive. Now, on to my post for today. It’s getting tougher these days to find under priced areas in the market. But even in the most extreme markets there are a few. One area that I’m finding good value in is the mortgage … Continue reading
“If bank stocks are the best investments you can find for your portfolio, you should fear for you wealth.” Value Investment Institute, March 2011 Pretty strong words. I came across this commentary on banks from the Value Investment Institute and it prompted me to write this post on the suitability of banks for income investors. It’s a great and short read. First, lets look at why the authors are so negative on banks. It comes down to the primary risk management principal, preservation of capital. If the risk of capital loss from an investment is inordinately high then no other … Continue reading
Today I want to delve into a widely misunderstood part of the market – mortgage REITs. This misunderstanding creates some great opportunities for income investors to enhance returns and income without taking on much more risk. I’ll focus my discussion on the biggest and best of the mortgage REITs, Annaly Capital Management Inc, symbol NLY. Mortgage REITs are real estate investment trusts that invest in mortgages, usually through mortgage backed securities. The basic business model is the same for all of them. They invest in mortgage backed securities at a certain yield. They use leverage on their equity to fund … Continue reading