Annaly Capital Management, Inc. (NYSE:NLY) is heavily invested in the 30-year fixed rate Agency MBS, which brought most of the damage at CYS Investments in the shape of a significant book value decline. While I have not come across any portfolio re-balancing efforts at Annaly Capital Management, it’s hard to believe that it would ignore it.
In another attempt to manage its book value, the company lowered its leverage and placed some CRE loans in its assets, which are considered less sensitive to changes in interest rates. This will offset some of the effect of the large exposure in the 30-year fixed rate Agency MBS.
Besides, Annaly’s recent acquisition of CreXus Investments would add low double-digit returns to the top line. So, I believe Annaly is scheduled to report a top and bottom line surge, with a relatively less book value erosion, compared to what we saw at CYS Investments.
While American Capital Agency Corp. (NASDAQ:AGNC) was also heavily invested in the trouble-making 30-year fixed rate Agency MBS, its management decided to get rid of some of it in a portfolio re-balancing exercise conducted recently. This re-balancing, coupled with the active management of assets and hedges, will probably cause the company to report lower top and bottom lines at the end of the second quarter.
I also believe that the re-balancing exercise will lead the company to report a book value decline lower than 9% (which it had reported at the end of the first quarter).
I believe only Annaly Capital Management is positioned to report a second-quarter performance that should be better than CYS Investments Inc (NYSE:CYS)’. I believe that it will report some expansion in its net interest rate spread, which would translate into a boost in the bottom line. Also, it would probably be able to report the lowest book value decline among the mREITs considered in this article.
The article Will This mREIT’s Recent Results Set the Trend for Others? originally appeared on Fool.com and is written by Adnan Khan.
Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan 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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