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Hedge Fund Pine River Capital’s High Yield Picks Include Annaly Capital Management, Inc. (NLY)

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Editors’s Note: Related Tickers: Annaly Capital Management, Inc. (NYSE:NLY), CYS Investments Inc (NYSE:CYS), American Capital Agency Corp. (NASDAQ:AGNC), Home Loan Servicing Solutions Ltd (NASDAQ:HLSS), Anworth Mortgage Asset Corporation (NYSE:ANH)

We maintain a database of 13F filings from hedge funds and other notable investors for a variety of purposes. For one, this information is useful in developing investing strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year. We can also track top picks by individual managers in a number of areas, including stocks which pay high dividend yields according to current prices and recent dividend payments. Investors can then use these as initial ideas for further research. We have gone through the 13F for Brian Taylor’s Pine River Capital Management and here are five stocks it owned at the beginning of this year with high dividend yields (or see the full list of stocks Pine River reported owning):

Annaly Capital Management, Inc. (NYSE:NLY)

The fund’s largest holding at the end of December was its nearly 24 million shares of Annaly Capital Management, Inc. (NYSE:NLY). Annaly- like most of the high yielders we’ll be discussing here- is a real estate investment trust. Such companies are required to distribute a large share of taxable income to shareholders in order to preserve their favorable tax treatment, and this often results in high yields. In the case of Annaly Capital Management, Inc. (NYSE:NLY) this yield is over 10%. However, the company invests in a variety of mortgage-backed securities and so it (and similar REITs) are not considered safe investments; we think that investors should avoid becoming too exposed to REITs particularly those which invest in MBS.

Taylor and his team sold a small portion of their shares in CYS Investments Inc (NYSE:CYS) though they still owned 8.2 million shares at the end of the fourth quarter of 2012. CYS currently pays a dividend yield just above 10%, though of course it too is a somewhat risky investment. In fact, quarterly dividend payments seem to be on a downward trend; in addition, the company only went public in mid 2009. Brookside Capital, a hedge fund which is part of the larger Bain Capital alternative investment firm, initiated a position of over 4 million shares during Q4 (find Brookside’s favorite stocks).

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