Savvy Trades and Investments

[researcher59]

IVR -.10 to 2.50 looks very oversold, down 46% from its June high of 4.60, but it was clearly overvalued at the peak. I don't know why it traded so high, except perhaps momentum.

Generally mortgage REITs are hurt by rising interest rates. ORC recently preannounced a writedown of mortgage assets for Q4 and cut the dividend, but the MREITs are all different. Most of them hedge against interest rate fluctuations with interest rate swaps that they keep rolling over at expiration. IVR has a large position in the swaps so maybe they're well protected and in any case with the stock so beated down, some bad news is already priced in.

I have a sizable position in NRZ, which is much larger and more complex than IVR. They have a big position in MSR's (mortgage servicing rights) which serve as a hedge against rising rates because fewer mortgage holders refianance so the MSR's gain value when rate rise. Of course they also have interest rate swaps.

I'm tracking a bunch of mortgage REITs and will be interested in seeing whether there are any more cautious preannouncements and what the earnings and guidance looks like when most report in early to mid February.

Here's an article on rising rates and the impact to mortgage REITs, but the REITs are all hedged somewhat differently and some will do much better than others and to some extent bad news is already priced in.

https://www.edwardjones.com/sites/default/files/acquiadam/2022-01/mortgage-reits-high-yield-but-high-risk.pdf

ORC warning -

https://finance.yahoo.com/news/orchid-island-capital-announces-estimated-211500604.html

ORC looks cheap now with a very high 17% yield, but I'm guessing another asset writedown and dividend cut is lurking for Q1.