Hybrid in nature
Invesco Mortgage Capital Inc (NYSE:IVR) reported its CEO bought shares of the company at an average price of $15.40 to increase his stake by 13%. The stock is trading below the CEO’s average purchase price.
Invesco Mortgage Capital Inc (NYSE:IVR) reported a second-quarter book value decline smaller than the declines experienced by Annaly Capital Management, Inc. (NYSE:NLY) and CYS Investments. That’s because Invesco Mortgage Capital Inc (NYSE:IVR) has an investment portfolio that is composed of a mixture of government-backed securities and securities without government backing. In additional to residential mortgage-backed securities, the company has investments in commercial mortgage-backed securities, too.
This hybrid nature of the company’s investment portfolio provides it with some diversification. Credit Suisse analysts predict a 2% decline in its third-quarter book value. This is much lower than the declines expected for Annaly Capital Management, Inc. (NYSE:NLY) and CYS Investments. Also, a 100 basis point upwards movement in interest rates will lead the company to report the smallest decline in its book value among the three mREITs. A non-agency portfolio is typically less leveraged, and therefore less sensitive to interest rates movements, compared to an agency portfolio. This diversified portfolio is one of the major reasons Invesco Mortgage Capital Inc (NYSE:IVR) is predicted to report lower book value declines.
Invesco Mortgage Capital Inc (NYSE:IVR)’s investment portfolio may be better positioned to withstand future pressures on its book value — one of the major reasons for that is the hybrid nature of its investment portfolio.
The month of September is critical for the mREITs sector because this is when the Fed’s Open Market Committee is meeting next to decide the fate of QE. If the Fed decides to slow down or cut its bond buying program, interest rates could increase further, and investors could see more volatility in rates.
Despite the recent insider buying, mREITs may not have bottomed out. The month of September could bring increased volatility in rates, causing mREITs to dip again. When the rates do ultimately stabilize, Invesco Mortgage Capital maybe the best investment opportunity among these companies.
The article mREIT Insiders Are Increasing Their Stakes — Should You? originally appeared on Fool.com and is written by James Clarkson.
James Clarkson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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