American Capital Agency Corp. (AGNC), Invesco Mortgage Capital Inc (IVR): A Few Good Signs for mREITs

Annaly Capital Management

Annaly Capital Management, Inc. (NYSE:NLY) reported that if the interest rates surge 50 bps, its projected net interest income will increase 16.91%. At the same time, the company reports a negative interest rate sensitivity gap. This means that the company has more asset sensitive liabilities than asset sensitive assets. Therefore, if the rates increase, the reduction in the value of its interest sensitive liabilities will be more than the decrease in its interest sensitive assets. In short, Annaly Capital Management, Inc. (NYSE:NLY) has constructed its portfolio in such a way that it will benefit if the rates increase.

Invesco Mortgage Capital

Invesco Mortgage Capital Inc (NYSE:IVR) is a hybrid mortgage REIT with investments in both Agency and non-Agency residential mortgage backed securities. It has constructed its portfolio in such a way that it will also benefit from a hike in the interest rates. According to its latest SEC quarterly filings, the company reports that its projected net interest income will increase 19.24% if the rates go up 50 bps.

Conclusion

While the entire mortgage REITs sector will welcome the anticipated halt in the Fed’s easing programs and the resultant hike in the interest rates, there are a few mREITs that will be at a disadvantage. One such example is American Capital Agency Corp. (NASDAQ:AGNC). It has positioned its investment portfolio in such a way that it will be at a disadvantage if the rates start climbing up. However, Annaly Capital and Invesco Mortgage Capital Inc (NYSE:IVR) are the best alternatives in such a scenario.

The article A Few Good Signs for mREITs originally appeared on Fool.com and is written by Adnan Khan.

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