Annaly Capital Management, Inc. (NLY): This mREIT Will Soon Dwarf It

When it comes to double-digit returns, it’s hard to beat the mortgage REIT sector, particularly since Federal Reserve actions since the financial crisis have kept short-term interest rates at historic lows. The shining example of this type of real estate investment trust is Annaly Capital Management, Inc. (NYSE:NLY), the original investor in mortgage-backed securities insured by government sponsored entities such as Fannie Mae and Freddie Mac.

Annaly has built its reputation on stellar yields produced by a savvy management team, building the business from its inception in 1997 to a company with a market capitalization of $15 billion and assets topping $133 billion. But there’s a relative newcomer that seems intent on knocking Annaly Capital Management, Inc. (NYSE:NLY) off of its throne: American Capital Agency Corp. (NASDAQ:AGNC).

A great year for mortgage REITs
American Capital Agency (NASDAQ:AGNC) went public in 2008, a year that saw other mREITs such as Hatteras Financial Corp. (NYSE:HTS), and Armour Residential REIT, Inc. (NYSE:ARR) enter the territory as well. Groundbreaker Annaly had shown that the carry trade could be lucrative, and the ultra-low short-term interest rate environment created a perfect climate for new companies to enter the playing field.

Both Hatteras and Armour have been successful, but American Capital Agency, under the guidance of Gary Kain, has seen explosive growth in its short life. While Hatteras’ market cap sits at less than $3 billion and Armour’s is under $2.5 billion, American Capital Agency sports a $13 billion capitalization. Annaly’s current market cap is $15 billion, showing that American Capital is hot on its heels and could overtake the venerable mREIT in short order.

Too big, too fast?
American Capital Agency has accrued nearly as much in assets as Annaly, too. At the end of 2012, the trusts held approximately $100.5 billion, and $133.5 billion, consecutively, and it looks like Annaly Capital Management, Inc. (NYSE:NLY) may lose its premier spot sooner rather than later: American Capital Agency held a mere $58 billion in assets at the end of 2011, meaning that it nearly doubled its asset base in one year’s time. How did it accomplish this?