Introduction/Recap:

On 10/30/2019, AGNC Investment Corp. (AGNC) reported results for the third quarter of 2019. AGNC reported a net loss of ($4) million, other comprehensive income (“OCI”) of $246 million, comprehensive (total) income of ($242) million, a non-tangible book value (“BV”) as of 9/30/2019 of $17.52 per common share, and a tangible BV as of 9/30/2019 of $16.55 per common share. As of 6/30/2019, AGNC had a non-tangible and tangible BV of $17.54 and $16.58 per common share, respectively.

In PART 3 of my AGNC Q3 2019 income statement and EPS projection article, I projected the company would report the following amounts in relation to the third quarter of 2019: 1) net income of $137 million; 2) OCI of $246 million; and 3) comprehensive income of $242 million. In my prior AGNC Q3 2019 and 10/11/2019 BV projection article, I projected the company would report a non-tangible and tangible BV as of 9/30/2019 of $17.55 and $16.60 per common share, respectively.

As such, both my AGNC non-tangible and tangible BV projections were basically an “exact match” when compared to the company’s reported amounts. With that being said, a couple of AGNC accounts outperformed my expectations while a couple underperformed my expectations (which basically “netted” themselves out; which is something I anticipate when I set my projections). As such, this article will still take a look at each of AGNC’s income statement accounts and compare them to my previous projections. First though, let us take a look at how some mortgage real estate investment trust (“mREIT”) companies have performed during the third quarter of 2019, regarding BV fluctuations, versus my projections and other sector peers.

mREIT Sector Q3 2019 Comparative BV Results:

Through 11/1/2019, ten other mREIT companies that I currently cover recently disclosed to the public estimated/reported BV per share amounts as of 9/30/2019. I believe providing these quarterly BV fluctuations are beneficial for comparative purposes. As such, the following were the recent BV fluctuations for AGNC and ten other mREIT companies during the third quarter of 2019 (in order of largest to smallest percentage increase/smallest to largest percentage decrease):

1) Dynex Capital Inc. (DX) (hybrid mREIT that is currently heavily invested in agency MBS): Actual Q3 2019 BV increase of 2.2% and a 9/30/2019 BV of $18.07 per common share. My previous projection was a 9/30/2019 BV of $17.50 per common share ($0.57 per share variance; OUTSIDE my stated range). I provided my DX assessment to subscribers of the REIT Forum.

2) PennyMac Mortgage Investment Trust (PMT) (multipurpose mREIT): Actual Q3 2019 BV increase of 1.7% and a 9/30/2019 BV of $21.14 per common share. My previous projection was a 9/30/2019 BV of $21.00 per common share ($0.14 per share variance; well within my stated range [within 1%]). I provided my PMT assessment to subscribers of the REIT Forum (use link within DX above).

3) Chimera Investment Corp. (CIM) (hybrid mREIT): Actual Q3 2019 BV increase of 0.9% and a 9/30/2019 BV of $16.38 per common share. My previous projection was a 9/30/2019 BV of $16.50 per common share ($0.12 per share variance; well within my stated range [within 1%]). I provided my CIM assessment to subscribers of the REIT Forum.

4) New Residential Investment Corp. (NRZ) (multipurpose mREIT): Actual Q3 2019 BV increase of 0.6% and a 9/30/2019 BV of $16.26 per common share. My previous projection was a 9/30/2019 BV of $16.10 per common share ($0.16 per share variance; well within my stated range [within 1%]). I provided my NRZ assessment to subscribers of the REIT Forum.

5) AGNC (fixed-rate agency mREIT): Actual Q3 2019 non-tangible and tangible BV decrease of (0.1%) and (0.2%), respectively (my previous projections provided above; well within my stated range [within 1%]).

6) Blackstone (BLK) Mortgage Trust, Inc. (BXMT) (multipurpose mREIT): Actual Q3 2019 BV decrease of (0.1%) and a 9/30/2019 BV of $27.82 per common share. My previous projection was a 9/30/2019 BV of $28.20 per common share ($0.38 per share variance; within my stated range). I provided my BXMT assessment to subscribers of the REIT Forum (use link within NRZ above).

7) ARMOUR Residential REIT Inc. (ARR) (fixed-rate agency mREIT): Actual Q3 2019 BV decrease of (0.3%) and a 9/30/2019 BV of $20.43 per common share. My previous projection was a 9/30/2019 BV of $20.90 per common share ($0.47 per share variance; at the low end of my stated range). I provided my ARR assessment to subscribers of the REIT Forum.

8) Ellington Financial Inc. (EFC) (hybrid mREIT): Preliminary actual Q3 2019 BV decrease of (0.5%) and a 9/30/2019 BV of $18.81 per common share. My previous projection was a 9/30/2019 BV of $18.95 per common share ($0.14 per share variance; well within my stated range [within 1%]).

9) Annaly Capital Management Inc. (NLY) (fixed-rate agency mREIT): Actual Q3 2019 BV decrease of (1.3%) and a 9/30/2019 BV of $9.21 per common share. My previous projection was a 9/30/2019 BV of $9.30 per common share ($0.09 per share variance; well within my stated range [within 1%]). I provided my NLY assessment to subscribers of the REIT Forum (use link within CIM above).

10) Capstead Mortgage Corp. (CMO) (variable-rate agency mREIT): Actual Q3 2019 BV decrease of (3.7%) and a 9/30/2019 BV of $8.60 per common share. My previous projection was a 9/30/2019 BV of $8.85 per common share ($0.25 per share variance; at the low end of my stated range). I provided my CMO assessment to subscribers of the REIT Forum (use link within NRZ above).

11) Orchid Island Capital Inc. (ORC) (fixed-rate agency mREIT): Actual Q3 2019 BV decrease of (6.2%) and a 9/30/2019 BV of $6.22 per common share. My previous projection was a 9/30/2019 BV of $6.60 per common share ($0.38 per share variance; OUTSIDE my stated range). I provided my ORC assessment to subscribers of the REIT Forum.

So, with approximately half of the mREIT sector reporting earnings through 11/1/2019, 2 peers reported a BV as of 9/30/2019 that was outside my projected range (DX a modest outperformance while ORC had a notable underperformance), 2 peers reported a BV that was at the low end of my projected range (ARR and CMO), 1 peer reported a BV that was inside my projected range but had a larger than 1% variance (BXMT), and 6 peers reported a BV that was either well inside my stated range (within a 1% variance) or basically an exact match (AGNC, CIM, EFC, NLY, NRZ, and PMT).

As readers can see, some mREIT peers can have modestly-notably different results in any given quarter. Since I began covering the mREIT sector through Seeking Alpha in 2013, even with similar types of quarterly interest rate/yield movements, results can notably vary from one quarter to the next. In some cases, this even occurs when peers have very similar types of investments. This is due to the underlying subtle, yet numerous types of identifiable differences from mREIT to mREIT when one takes a “good look under the hood”. This is the main reason why it is so hard for analysts to project the quarterly BV fluctuations within the mREIT sector in any given quarter.

Regarding my personal performance, I project/provide ALL my quarter-end BV fluctuations for the entire mREIT sector PRIOR to any company reporting quarterly results. As such, when 9 out of 11 mREIT peers listed above had their BV as of 9/30/2019 fall within my previously projected range (including 6 peers that reported a BV within just 1% of my previous projection), I believe that is an extremely hard “feat” to accomplish. Simply put, it is not easy to provide this type of accuracy which is why myself, along with contributors of the REIT Forum, are the only analysts on Seeking Alpha (or any other web-based platform) who provide this type of continuous, labor-intensive service for readers.

Out of the 11 mREIT peers mentioned above, I was most impressed with DX’s quarterly performance, followed by PMT. I was most disappointed by ORC’s performance. Again, my detailed assessment for each mREIT described above (excluding EFC who has not “officially” reported earnings yet), was provided to subscribers of the REIT Forum.

Within the next section of this article, I will summarize my prior articles’ account projections and compare each amount to AGNC’s actual results. If an account had at least a modest variance between projected and actual results, I will also provide an explanation on the variance. I will list AGNC’s accounts in the same order as projected within my income statement and EPS projection article (see link provided above).

AGNC Actual Versus Projected Results:

To highlight my projected account figures versus AGNC’s actual reported results for the third quarter of 2019, Table 1 is provided below. Table 1 shows AGNC’s consolidated statement of comprehensive income (loss) from a three-months ended timeframe. I provide AGNC’s trailing twelve-months (last four quarters) so readers can better compare and contrast each quarter’s results.

Table 1 – AGNC Three-Months Ended Consolidated Statement of Comprehensive Income (Loss) (Q3 2019 Actual Versus Projected)

(Source: Table created by me, partially using data obtained from AGNC’s quarterly investor presentation slides)

First, let us compare AGNC’s interest income account. My projection for this account was $690 million. In comparison, AGNC reported interest income of $676 million. As such, AGNC’s interest income was a very minor underperformance when compared to my expectations and was well within my projected account range. The first component of AGNC’s interest income is the company’s cash interest income sub-account. I projected AGNC would record cash interest income of $865 million during the third quarter of 2019. In comparison, AGNC recorded cash interest income of $868 million. This was basically an exact match. The second component of AGNC’s interest income is the company’s premium amortization, net sub-account. When it comes to AGNC’s estimated lifetime “conditional prepayment rate” (“CPR”) percentage, my estimated lifetime CPR percentage as of 9/30/2019 was slightly below management’s estimate by (0.4%). When calculated, I projected AGNC would record a total premium amortization expense of $175 million during the third quarter of 2019. In comparison, AGNC recorded a total premium amortization expense of $192 million.

Second, my projection for AGNC’s interest expense account was $545 million. In comparison, AGNC reported interest expense of $557 million. I would also consider this as a very minor underperformance and was well within my projected account range. As anticipated (contrary to one particular frequently “bearish” Seeking Alpha user), the weighted average interest rate on AGNC’s repurchase loans slightly decreased during the third quarter of 2019. AGNC’s weighted average interest rate on the company’s repurchase loans was 2.62% during the second quarter of 2019. This rate decreased to 2.48% during the third quarter of 2019. In comparison, I projected a weighted average repo rate of 2.50% during the third quarter of 2019. However, this was offset by a slightly higher weighted average repurchase agreement balance during the quarter when compared to my expectations. The relationship between repurchase loan rates and the London Interbank Offered Rate (LIBOR) was originally discussed within my income statement projection article (see links provided above).

For readers mainly focused on dividend metrics, AGNC reported net spread + NDR income (when excluding any “catch up” premium amortization) of $321 million or $0.59 per common share for the third quarter of 2019. This was a very nice “bounce back” when compared to the prior quarter and was a notable (and positive) surprise. In comparison, I projected AGNC would report net spread + NDR income of $251 million or $0.46 per common share. Simply put, similar to DX’s risk management strategy during the third quarter of 2019, AGNC was extremely active within the company’s derivatives portfolio which notably increased the company’s periodic interest income of interest rate swaps, net account.

During the second quarter of 2019, AGNC’s interest rate swaps portfolio reported net periodic interest income of $88 million. If AGNC maintained its 6/30/2019 interest rate swaps payer portfolio through 9/30/2019, the company would have reported net periodic interest income of approximately $70 million during the third quarter of 2019. I anticipated AGNC would slightly “improve” the company’s interest rate payers swap portfolio during the quarter; hence my projection of net periodic interest income of $80 million during the third quarter of 2019 (still a decrease when compared to the prior quarter due to the modest decrease in the receiver leg of all interest rate payer swaps during the quarter). However, with both a notable increase in interest rate payer swaps with shorter tenors/maturities (under three years) when rates were at or near their intra-quarter lows, along with terminating/canceling some older/higher cost contracts with longer tenors/maturities (seven-ten years), AGNC reported net periodic interest income of $146 million during the third quarter of 2019. In a nutshell, this was a notable improvement which easily surpassed my expectations. This directly led to the notable outperformance of AGNC’s net spread + NDR income during the third quarter of 2019.

As discussed in PART 2 of my AGNC Q2 2019 income statement and EPS projection article, I stated this specific metric is currently the closest portrayal of AGNC’s “true earnings power” when it comes to dividend sustainability. I also stated AGNC continued to experience pressure to reduce the company’s monthly dividend per share rate during 2019 since this metric has declined over the prior several quarters leading up to the third quarter of 2019. As such, AGNC’s previous announcement of a ($0.02) per common share monthly dividend reduction, starting in May 2019, was not that much of a surprise when it was announced. However, with this recent increase to AGNC’s net spread + NDR income, this should be interpreted as “bullish” for the company’s near-term dividend sustainability. However, I would point out this net interest income will likely decrease during the fourth quarter of 2019 due to the continued recent net decrease of LIBOR (and other related spreads/rates/indices). As such, I do NOT anticipate any type of AGNC dividend increase over the foreseeable future. In my opinion, investors should be happy if the current monthly $0.16 per common share dividend remains stable.

Third, my projection for AGNC’s sales on investment securities account was a net realized gain of $125 million. In comparison, AGNC reported a net realized gain of $89 million. I believe this was nearly an exact match due to the sheer size of AGNC’s on-balance sheet MBS/investment portfolio as of 9/30/2019 ($100.7 billion).

Fourth, my projection for AGNC’s derivative instruments and other securities account was a severe net loss of ($612) million. In comparison, AGNC reported a slightly less severe net loss of ($548) million. Due to the complexities involved within this particular account when it comes to valuation fluctuations, there is typically a larger variance when discussing AGNC’s derivatives portfolio versus most other accounts. As such, I would consider this a very minor account outperformance. I would also point out valuing AGNC’s hedging portfolio involves projecting four material derivative sub-accounts (currently “to-be-announced” [TBA] MBS, interest rate swaps, interest rate swaptions, and U.S. Treasury securities) and several other minor derivative sub-accounts. In addition, AGNC’s derivatives portfolio had a combined net notional balance of ($96.6) billion as of 9/30/2019 (excluded TBA MBS). While no one has a “crystal ball” per se regarding future events, being able to project all these derivative sub-accounts, before any sector peer provides quarterly results, takes a great deal of expertise in my opinion. This includes fully understanding how to value all these derivative instruments and correctly deciding on specific assumptions that one believes coincided with management’s overall risk management strategy during any particular quarter.

Simply put, a couple of the assumptions I used to project the quarterly change in valuations within AGNC’s derivatives portfolio “deviated” from the company’s actual risk management strategy. This quarter, these assumptions partially “netted” themselves out. Within AGNC’s four material derivative sub-accounts, this net variance mainly consisted of a less severe valuation loss within the company’s interest rate swaps. As discussed earlier, AGNC modestly net increased the company’s net (short) interest rate payer swaps position during the quarter. All other factors held constant, this would have led to a more severe valuation decrease versus my projection. However, AGNC also notably changed the underlying composition of the company’s interest rate payer swaps portfolio. AGNC entered into new interest rate payer swap contracts towards the shorter-end of the yield curve while terminating/canceling some older contracts towards the longer-end of the yield curve. This led to a modestly less severe valuation decrease versus my expectations (shorter projected cash flows and lower negative durations). To a lesser extent, AGNC lowered the company’s net long TBA MBS position during August when overall MBS prices were at or near intra-quarter highs. As such, AGNC reported a slightly larger net valuation gain within this derivative sub-account when compared to my projection.

I projected AGNC would report a net valuation gain (loss) of $95, ($520), ($22), and ($165) million regarding the company TBA MBS, interest rate payer swaps, interest rate payer swaptions, and U.S. Treasury securities, respectively. In comparison, AGNC reported a net valuation gain (loss) of $144, ($482), ($19), and ($189) million regarding the company TBA MBS, interest rate payer swaps, interest rate payer swaptions, and U.S. Treasury securities, respectively. Further analysis regarding AGNC’s derivatives portfolio is provided later in the article.

Fifth, let us discuss AGNC’s on-balance sheet MBS/investment portfolio. Regarding AGNC’s “unrealized gain (loss) on investment securities measured at fair market value (“FMV”) through net income, net” (see boxed blue reference “5a”) and “unrealized gain (loss) on available-for-sale (“AFS”) securities, net” (see boxed blue reference“5b”) accounts, I projected the company would report a combined net unrealized gain of $640 million. In comparison, AGNC reported an unrealized net valuation gain of $601 million. Due to the sheer size of AGNC’s on-balance sheet MBS/investment portfolio as of 9/30/2019 ($100.7 billion), I believe a ($39) million variance is nearly an exact match. If one were to include the $49 million outperformance within the company’s off-balance sheet TBA MBS position (discussed in the account above), this net variance would decrease to only $10 million which is basically an exact match. AGNC’s MBS/investment and TBA MBS portfolios typically have offsetting impacts to one another. A detailed analysis regarding AGNC’s MBS portfolio is provided in the next section of the article.

Finally, my projection for AGNC’s compensation expense (formerly management fees) and operating expense accounts was $11 and $10 million, respectively. In comparison, AGNC reported compensation expense and operating expenses of $10 and $9 million, respectively.

Now, let me briefly highlight some quarterly compositional changes that occurred within AGNC’s MBS and derivatives portfolios.

MBS Portfolio Considerations:

AGNC slightly increased the company’s on-balance sheet MBS portfolio while modestly decreasing its off-balance sheet net long TBA MBS position during the third quarter of 2019. However, due to some quarterly share repurchases, AGNC’s non-tangible “at-risk” (total) leverage remained unchanged at 9.3x as of 9/30/2019 versus 6/30/2019. To show the compositional changes to AGNC’s combined on- and off-balance sheet agency MBS portfolio during the third quarter of 2019, Table 2 is provided below.

Table 2 – AGNC Fixed-Rate Agency MBS Portfolio Quarterly Compositional Changes (9/30/2019 Versus 6/30/2019)

AGNC Fixed-Rate Agency MBS Portfolio Quarterly Compositional Changes(Source: Table created by me, including all calculated figures and percentages)

Using Table 2 above as a reference, when comparing AGNC’s portfolio as of 9/30/2019 versus 6/30/2019, the company had a net par value increase (decrease) in its 15-year fixed-rate agency MBS holdings with a 2.5%, 3.0%, 3.5%, 4.0%, 4.5%, 5.0%, and 5.5% coupon of $0.1, $0.2, ($1.3), ($0.3), less than ($0.1), $0, and less than ($0.1) billion, respectively. When all 15-year fixed-rate agency MBS holdings are combined, this was a quarterly net par value decrease of ($1.3) billion. AGNC had a combined net par value increase in the company’s 20-year fixed-rate agency MBS holdings of less than $0.1 billion. AGNC had a net par value increase (decrease) in the company’s 30-year fixed-rate agency MBS holdings with a 3.0%, 3.5%, 4.0%, 4.5%, 5.0%, and 5.5% coupon of $12.9, ($10.7), ($2.7), ($0.7), $0.2, and less than ($0.1) billion, respectively. When all 30-year fixed-rate agency MBS holdings are combined, this was a quarterly net par value decrease of ($1.0) billion.

As I have highlighted in various prior mREIT articles, typically fixed-rate agency MBS portfolios with higher coupons “mitigate” the severity of valuation losses in a rising interest rate environment. This strategy also partially offsets the recent notable rise in borrowing costs. However, typically fixed-rate agency MBS portfolios with lower coupons “enhance” the amount of valuation gains in a decreasing interest rate environment; mainly due to reduced CPR percentages. As shown in Table 2, AGNC notably increased the company’s 30-year fixed-rate holdings with a 3.0% coupon (a good portion of that was TBA MBS) while decreasing its exposure to the 3.5% and 4.0% coupons (mainly by (shorting) higher coupon TBA MBS). Simply put, along with a continued concentration in higher quality specified pools within higher coupons, this ultimately led AGNC to report a more enhanced MBS/investment net valuation gain when compared to most fixed-rate agency mREIT peer which directly lowered the severity of the company’s quarterly BV decrease to relatively unchanged. Now let us analyze AGNC’s derivatives portfolio as of 9/30/2019.

Derivatives Portfolio Considerations:

During the third quarter of 2019, AGNC modestly increased the company’s already fairly elevated hedging coverage ratio. This was in direct contradiction to the strategies of most sector peers as rates/yields notably decreased during 2019. When all other factors are held constant, raising one’s hedging coverage ratio would lead to a more severe valuation decrease in a decreasing interest rate environment versus lowering a company’s hedging coverage ratio. However, AGNC also notably changed the underlying composition of the company’s interest rate payer swaps. As discussed earlier, AGNC entered into new interest rate payer swap contracts towards the shorter-end of the yield curve while terminating/canceling some older contracts towards the longer-end of the yield curve. This ultimately led to a slightly less severe valuation loss within AGNC’s derivatives portfolio versus my projection. To show the compositional changes to AGNC’s derivatives portfolio during the third quarter of 2019, Table 3 is provided below.

Table 3 – AGNC Derivatives Portfolio Quarterly Compositional Changes (9/30/2019 Versus 6/30/2019)

AGNC Derivatives Portfolio Quarterly Compositional Changes(Source: Table created by me, partially using data obtained from AGNC’s quarterly investor presentation slides [link provided below Table 1])

Using Table 3 above as a reference, AGNC had a hedging coverage ratio of 91% as of 6/30/2019. AGNC’s hedging coverage ratio increased to 101% as of 9/30/2019. This was a modest (at or greater than 10% but less than 20%) increase for one quarter. When I projected AGNC’s quarterly valuation fluctuation within the company’s derivatives portfolio, I assumed management would have decreased its hedging coverage ratio to approximately 85% as of 9/30/2019; mainly through a minor reduction to its net (short) interest rate payer swaps and U.S. Treasury securities position.

As I have highlighted in various prior mREIT articles, typically a derivatives portfolio with a higher hedging coverage ratio mitigates the severity of BV losses in a rising interest rate environment. However, this particular strategy is detrimental to BV in a declining interest rate environment which is exactly what occurred during June and August 2019. Of course, other factors are at play but I am keeping it brief/simple for purposes of this discussion.

Partially mitigating AGNC’s higher hedging coverage ratio, the weighted average tenor/maturity of the company’s derivatives portfolio modestly decreased from 5.5 years as of 3/31/2019 to just 3.8 years as of 9/30/2019. If there was no activity within a derivatives portfolio during this period, the portfolio’s weighted average tenor/maturity would decrease by (0.5) years. As such, one can come to the conclusion AGNC reduced some longer-dated hedges while increasing some shorter-dated hedges during this period which typically lowers negative duration.

Conclusions Drawn:

Readers have continued to request that I provide these types of “update/follow-up” articles showing how my previously disclosed quarterly projections “stacked-up” to AGNC’s actual results (continue to be the only contributor to provide this type of projection analysis/insight via “free to the public” articles). I believe the analysis above accomplishes this request.

When all accounts are combined, I projected AGNC would report comprehensive income of $277 million during the third quarter of 2019. In comparison, AGNC reported comprehensive income of $242 million. When including projections within AGNC’s equity section of the balance sheet, this ultimately led to the company reporting a non-tangible and tangible BV of $17.52 and $16.55 per common share versus my projection of $17.55 and $16.60 per common share, respectively. As such, my AGNC BV figures were basically an exact match to what the company reported. Therefore, AGNC’s quarterly BV fluctuation was as expected.

Digging deeper, AGNC’s derivatives portfolio slightly outperformed my expectations while the company’s MBS/investment portfolio slightly underperformed my expectations. AGNC’s quarterly BV fluctuation has outperformed most fixed-rate agency mREIT peers (a couple have yet to report as of 11/1/2019) while likely being towards the broader mREIT sector average for the third quarter of 2019 (many hybrid mREIT peers have yet to report).

Moving to the fourth quarter of 2019, AGNC’s BV has likely decreased (2.5%) – (0.5%) during October 2019 as a more “negative” relationship between MBS pricing and derivative instrument valuations occurred. The severity of the negative relationship has partially abated during the last week of October.

Moving to dividend metrics, AGNC’s net spread and NDR income of $0.59 per common share for the third quarter of 2019 was a nice bounce back when compared to the prior quarter’s $0.49 per common share. This was mainly the result of terminating/cancelled some higher cost interest rate payer swap contracts while continuing to enter into new contracts towards the shorter-end of the yield curve which notably lowered AGNC’s weighted average fixed pay rate for this derivative sub-portfolio. While I do anticipate AGNC’s net spread and NDR income will decrease during the fourth quarter of 2019, the $0.10 per common share increase during the third quarter of 2019 has “widened the gap” between this metric and the company’s total monthly dividends currently totaling $0.48 per common share. As such, I believe AGNC will declare the following monthly dividends for November 2019-January 2020:

Dividend for November 2019 – January 2020 (Paid in Each Subsequent Month): $0.16 Per Common Share (80% Probability)

Readers should understand a portion of AGNC’s 2019 dividend will likely still be classified as a “return of capital” (“ROC”) distribution due to certain internal revenue code (“IRC”) taxation classifications. Further discussion of this IRC topic is beyond the scope of this particular article.

My BUY, SELL, or HOLD Recommendation:

From the analysis provided above, including additional catalysts/factors not discussed within this particular article, I currently rate AGNC as a SELL when I believe the company’s stock price is trading at or greater than my projected non-tangible CURRENT BV (BV as of 11/1/2019; $17.35 per share), a HOLD when trading at less than my projected non-tangible CURRENT BV through less than a (10%) discount to my projected non-tangible CURRENT BV, and a BUY when trading at or greater than a (10%) discount to my projected non-tangible CURRENT BV. These ranges are unchanged when compared to my last AGNC article (approximately three weeks ago). This CURRENT BV projection includes accounting for AGNC’s October 2019 dividend of $0.16 per common share (ex-dividend was 10/30/2019).

Therefore, I currently rate AGNC as a HOLDsince the stock is trading at less than my projected non-tangible CURRENT BV through less than a (10%) discount to my projected non-tangible CURRENT BV. As such, I currently believe AGNC is appropriately valued from a stock price perspective (not overvalued, not undervalued). My current price target for AGNC is approximately $17.35 per share. This is currently the price where my HOLD recommendation would change to a SELL. The current price where my recommendation would change to a BUY is approximately $15.60 per share.

Along with the data presented within this article, this recommendation considers the following mREIT catalysts/factors: 1) projected future MBS price movements; 2) projected future derivative valuations;and 3) projected near-term dividend per share rates. This recommendation also considers the four Federal (“Fed”) Funds Rate increases by the Federal Open Market Committee (“FOMC”) during 2018 (this was a more hawkish tone/rhetoric when compared to most of 2017) and the likely three Fed Funds Rate decreases during 2019 due to the recent dovish tone/rhetoric regarding overall monetary policy as a result of recent macroeconomic trends/events. This also considers the wind-down/decrease of the Fed’s balance sheet through gradual runoff/partial non-reinvestment (which began in October 2017 which increased spread/basis risk) and the recent “easing” of this wind-down starting in May 2019 regarding U.S. Treasuries and now August 2019 regarding agency MBS (which should partially reduce spread/basis risk when volatility remains subdued).

Each investor’s BUY, SELL, or HOLD decision is based on one’s risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader’s current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Current/Recent mREIT Sector Stock Disclosures:

On 1/31/2017, I initiated a position in NRZ at a weighted average purchase price of $15.10 per share. On 6/29/2017, 7/7/2017, and 12/21/2018, I increased my position in NRZ at a weighted average purchase price of $15.775, $15.18, and $14.475 per share, respectively. When combined, my NRZ position has a weighted average purchase price of $14.912 per share. This weighted average per share price excludes all dividends received/reinvested. Each NRZ trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on NRZ.

On 6/29/2017, I initiated a position in Cherry Hill Mortgage Investment Corp. (CHMI) at a weighted average purchase price of $18.425 per share. On 10/6/2017, 10/26/2017, 11/6/2017, 1/29/2018, 10/12/2018, 6/6/2019, 7/23/2019, and 9/5/2019 I increased my position in CHMI at a weighted average purchase price of $18.015, $18.245, $17.71, $17.145, $17.235, $16.315, $15.325, and $12.435 per share, respectively. When combined, my CHMI position has a weighted average purchase price of $13.739 per share (yes, my latest purchase was proportionately large). This weighted average per share price excludes all dividends received/reinvested. Each CHMI trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on CHMI.

On 8/31/2017, I initiated a position in CHMI’s Series A preferred stock, (CHMI.PA). On 9/12/2017, I increased my position in CHMI-A. When combined, my CHMI-A position has a weighted average purchase price of $25.198 per share. Each CHMI-A trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on CHMI.PA.

On 1/29/2018, I initiated a position in Two Harbors Investment Corp. (TWO) at a weighted average purchase price of $15.155 per share. On 4/17/2019, I increased my position in TWO at a weighted average purchase price of $13.165 per share. When combined, my TWO position has a weighted average purchase price of $13.825 per share. This weighted average per share price excludes all dividends received/reinvested. Each TWO trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on TWO.

On 3/8/2018, I initiated a position in New York Mortgage Trust, Inc.’s (NYMT) Series D preferred stock, (NYMTN). On 4/6/2018, 4/27/2018, 10/12/2018, 12/7/2018, 12/18/2018, and 12/21/2018 I increased my position in NYMTN. When combined, my NYMTN position has a weighted average purchase price of $22.379 per share. This weighted average per share price excludes all dividends received/reinvested. Each NYMTN trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on NYMTN.

On 10/12/2018, I initiated a position in Granite Point Mortgage Trust, Inc. (GPMT) at a weighted average purchase price of $18.155 per share. This weighted average per share price excludes all dividends received/reinvested. This GPMT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on GPMT.

On 10/12/2018, I initiated a position in AG Mortgage Investment Trust Inc. (MITT)at a weighted average purchase price of $17.105 per share. On 4/17/2019 and 6/3/2019, I increased my position in MITT at a weighted average purchase price of $16.22 and $15.52 per share, respectively. When combined, my MITT position has a weighted average purchase price of $15.946 per share. This weighted average per share price excludes all dividends received/reinvested. Each MITT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on MITT.

On 6/3/2019, I initiated a position in ARR at a weighted average purchase price of $17.545 per share. On 9/10/2019, I increased my position in ARR at a weighted average purchase price of $16.785 per share. When combined, my ARR position has a weighted average purchase price of $16.975 per share. This weighted average per share price excludes all dividends received/reinvested. This ARR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on ARR.

On 6/3/2019, I initiated a position in Invesco Mortgage Capital Inc. (IVR) at a weighted average purchase price of $15.49 per share. This weighted average per share price excludes all dividends received/reinvested. This IVR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on IVR.

Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in real time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalk disclosures, at the end of October 2019 I had an unrealized/realized gain “success rate” of 88.9% and a total return (includes dividends received) success rate of 97.8% out of 45 total positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a “total loss” in any of my past positions. Both percentages experienced a minor increase in October due to the partial reversal of the previous sell-off within the mREIT sector; mainly due to a partial easing of fears of narrowing net spreads and higher prepayments. I encourage other Seeking Alpha contributors to provide real time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility.

I am currently “teaming up” with Colorado Wealth Management to provide intra-quarter CURRENT BV per share projections on all 21 mREIT stocks I currently cover. This consists of weekly BV projections for all agency mREITs I cover (including AGNC) and monthly BV projections for all hybrid/multipurpose mREITs. I also provide some commentary/overall thoughts on most mREIT’s quarterly earnings. These very informative (and “premium”) projections are provided through Colorado’s S.A. Marketplace service. Starting in late October 2019, I have expanded my services through this Marketplace service via additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT articles.

Disclosure: I am/we are long ARR, CHMI, CHMI.PA, GPMT, IVR, MITT, NRZ, NYMTN, TWO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I currently have no position in AGNC, BLK, BXMT, CIM, CMO, DX, EFC, MORL, MORT, NLY, NYMT, ORC, PMT, or REM.

Colorado Wealth Management currently has a position in AGNCN, AGNCO, AIC, ANH, CHMI, CMO-E, IVR-C, MFA-B, and MITT.

Source link

2019-11-06