Replies to post #94358 on Savvy Trades and Investments

[researcher59]

AGNC, a large and complex mREIT, just reported Q4 earnings including a decline in book value for Q4. I think we can expect many other mREITs to report drops in book value, but it seems to be priced in already -

This management commentary provides some insight -

"Investor sentiment turned negative in the fourth quarter as the Federal Reserve signaled a very significant shift toward aggressive monetary policy normalization," said Peter Federico, the Company's President and Chief Executive Officer. "With inflation running well above its long run target and the labor market nearing full employment, the Fed reduced its asset purchases more quickly than its initial guidance, signaled a more aggressive series of short-term interest rate increases, and discussed a more rapid approach toward balance sheet normalization. This abrupt shift by the Fed led to an uptick in interest rate volatility amid greater monetary policy uncertainty. Against this backdrop, Agency mortgage-backed securities underperformed in the fourth quarter as spreads to benchmark rates widened moderately and valuations declined relative to interest rate hedges.

"While mortgage spread widening adversely impacts book value in the short term, it correspondingly improves the expected return on new investments and cash flows on higher coupon specified pools through slower prepayment speeds. Thus, the spread widening that occurred in 2021 and accelerated in January of this year is beneficial to our business over the long term.

"Market conditions will likely remain challenging as the Fed pivots from near zero short term rates and quantitative easing to higher rates and quantitative tightening in 2022. Accordingly, we plan to continue to operate with a more defensive position, characterized by lower leverage and significant hedge protection, which provides AGNC with capacity and flexibility to take advantage of attractive investment opportunities as they arise.

"Finally, AGNC's performance over longer time periods illustrates the value of being a long-term investor and the durability of our business model across a wide range of market conditions. Over the last three years, AGNC generated an aggregate economic return of 25% and paid stockholders an average annual dividend yield in excess of 10%, despite some very challenging market conditions. From our IPO in May 2008 through December 31, 2021, AGNC's results are even more compelling with an annualized total stock return of nearly 13% with dividends reinvested, outperforming the S&P 500 index over the period by over a full percentage point."

"As a result of the mortgage spread widening experienced in the fourth quarter of 2021, AGNC's economic return for the fourth quarter declined to -1.8%, reducing AGNC's economic return for the year to 2.9%, comprised of $1.44 in dividends per common share and a $0.96 decline in tangible net book value per share," stated Bernice Bell, the Company's Executive Vice President and Chief Financial Officer. "Our net spread and dollar roll income, excluding 'catch-up' premium amortization, totaled $0.75 per common share for the quarter, while our 'at risk' leverage at 7.7x our tangible net book value, as of December 31, 2021, remains meaningfully below our normal operating levels."