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Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC): Mortgage REITs Are on the Rebound

American Capital Agency Corp. (NASDAQ:AGNC) is the second largest mortgage REIT that invests in Fannie and Freddie mortgage backed securities. It announced the repositioning of its assets recently. The company recognized that its book value has already plunged 8% since the start of the current quarter. However, now the management decided to get rid of the 30-year fixed rate residential MBS, which is the main cause of the book value depreciation under rising interest rates. Further, active management of its assets will cause more attractive investment opportunities for American Capital Agency Corp. (NASDAQ:AGNC) to outperform its peers.

A safer option

Capstead Mortgage Corporation (NYSE:CMO) is another mortgage REIT that invests in Fannie and Freddie mortgage backed securities. However, its investment portfolio is different from that of Annaly Capital Management, Inc. (NYSE:NLY) and American Capital Agency Corp. (NASDAQ:AGNC). Capstead Mortgage Corporation (NYSE:CMO) invests exclusively in adjustable-rate mortgage backed securities (ARMs). They adjust they interest payments to the more current interest rates on the next reset date. That way, their book value is less exposed to erosion, while they are prone to deliver higher yields under the rising interest rate environment. Therefore, the company’s investment portfolio is best suited for the current environment.

Final Words

This storm in the mortgage REIT industry might not end soon. However, Annaly Capital Management, Inc. (NYSE:NLY), American Capital Agency Corp. (NASDAQ:AGNC) and Capstead Mortgage Corporation (NYSE:CMO) have already secured their book values from further erosion. Besides, Annaly Capital Management, Inc. (NYSE:NLY) and Capstead Mortgage Corporation (NYSE:CMO) can also expect higher asset yields. Therefore, I am bullish on the three stocks.

The article Mortgage REITs Are on the Rebound originally appeared on Fool.com is written by Red Chip.

Red Chip has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Red is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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