AGNC Investment Corp. AGNC adheres to an active portfolio-management policy, which has been aiding the company to tide through a varying interest rate and mortgage market environment. However, prepayment speeds have been high and are likely to impact higher-coupon Agency mortgage backed securities (MBS).
The company’s higher-coupon specified-pool MBS performed well in first-quarter 2021, with the benefits of slower projected prepayments outweighing the duration impact associated with higher discount rates. Such prudent asset-selection efforts offer greater stability of cash flows and bode well for long-term growth.
The Agency MBS market continues to benefit from the purchase efforts by the Federal Reserve and near-zero interest rate policy. Also, Government-sponsored enterprises guarantee the principal and interest payments, making Agency MBS a safer investment choice. Hence, with $63.6 billion of Agency MBS in its investment portfolio (as of Mar 31, 2021), AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed income markets and benefit from spread tightening.
Further, the company enjoys a decent financial position. It has access to attractive funding across a broad spectrum of counterparties and financing conditions. As a result, it has flexibility in the opportunistic enhancement of its portfolio.
Given the financial strength, the company’s capital deployment activities are likely to remain sustainable. Markedly, in October 2020, its $1-billion stock repurchase program, which was set to expire on Dec 31, 2020, was terminated and replaced with a new plan to repurchase up to $1 billion of common stock through Dec 31, 2021.In first-quarter 2021, it repurchased 13.4 million shares or $215 million of its common stock.
However, prepayment speeds have been high and are likely to impact higher-coupon Agency MBS. High prepayments increased the company’s weighted average actual one-month annualized constant prepayment rate to 29% in April from 24% in March. A challenging prepayment backdrop is a near-term headwind to book value growth, net interest income, spread and asset yield.
Also, AGNC Investment continues to adjust its investment portfolio, in sync with the current interest rate and global economic environment. Since it is prioritizing risk and liquidity management needs over incremental returns, robust returns are expected to remain elusive in the near term.
Moreover, a derivative portfolio, with a higher hedging coverage ratio, is typically detrimental for book value amid a low-interest-rate environment, as in present times.
Shares of this Zacks Rank #3 (Hold) company have gained 7% over the past three months compared with the industry’s growth of 6.4%.
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MFA Financial, Inc.’s MFA earnings estimates for the current year have moved up 7.5% to 43 cents in the past week. The company carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chimera Investment Corporation CIM Zacks Consensus Estimate for 2021 earnings has moved 17.4% north to $1.47 over the past month. The company currently carries a Zacks Rank of 2.
Annaly Capital Management Inc NLY has a Zacks Rank of 2 at present. The Zacks Consensus Estimate for the ongoing year’s earnings has been revised marginally upward to $1.10 in a month’s time.
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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
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