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Annaly Capital Management, Inc. Message Board

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  • thejumpingsheep thejumpingsheep Jan 10, 2013 7:11 AM Flag

    Two year mreit returns

    I am getting years confused. I meant 2011 for AGNC and 2012 for NLY. It all depends on date picked. I had AGNC late 2011 during the debt ceiling fallout as well as a ton of IVR which hit a double whammy at the time. I got out of AGNC when it hit around $33. Around the same time NLY had dipped to low $15s. Needless to say, if I cherry pick that date to two months out, NLY outperformed AGNC. This is why cherry picking is bad.

    AGNC most certainly outperformed NLY overall the last two years, but then again, at much higher risk given how each company is hedged. This risk was a big deal for someone like me. For example, if I had held AGNC to mid 2012 highs I would not have hedged that position, rather I would have sold outright for a short gain because I simply do not trust them yet. Again, the argument is that companies like AGNC have come and gone over the last 15 years, and when all the dust settled, NLY was one of the few that survived and added value to their shareholders even through very bad market conditions. With NLY I have enough confidence that I am willing to hold them long without much worry, so instead of selling, I hedged. End result is that I got to keep my shares for a good advantage this year (big difference between short and long gains).

    Also as you state, its easy to look in hindsight. There is no guarantee that AGNC will outperform NLY in the future. Even though they both use similar strategies to make money, their hedging and leverage strategies are different enough that certain conditions will benefit NLY over AGNC. In my opinion, AGNC just got lucky the last 2 years. Their high leverage could have easily destroyed them if Romney had been elected. He would have ended the easing and increased interest rates almost instantly. Which means a decline in book and a decline in margins. At their leverage levels, the damage would have been just as astounding as their gains the previous 2 years. NLY would have weathered it much better. Luckily (for both), the worst case did not happen.

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