From the BullMarket Report:
"In Article #2, you can read about the Healthcare Portfolio member that was named the fastest growing publicly traded small business for the second year in a row by Fortune Small Business magazine. It is an impressive feat, as you'll see. Notably, #2 on that list is ANWORTH MORTGAGE ASSET (ANH, $11.46, down 0.03), a Mortgage REIT in the Income Portfolio.
High short interest reduces the current price of a stock, but raises the probability of a price increase when the shorts cover.
Any stock which pays a high dividend is high-risk for a short, as it is not economically viable to hold the short for an extended period of time.
The two main reasons I have more money in NFI than in ANH are the higher yield, and the much higher short interest. Of course, it was the creation of the high short interest that jacked up NFI's yield to its current level.
Because there is some interest rate risk, I am spreading my investment between 3 high-dividend stocks: ANH, ACAS, & NFI. Their exposure to interest rate uncertainties appear quite diferent to me.
I am also reinvesting my dividends,hoping that in 6-12 months that will pay off.I am concerned about interest rate hikes but trying to hold ANH.I did in fact buy it a few times in the 14 buck area,so the divdends are helping me with my losses at this time.Tommorrow should be interesting day to see what investors will do,but ANH being below NAV,could help the hit.Adamo
I also hold substantially more ANH than NLY for the same reason, plus it looks like ANH has better control of their cost of funds than NLY in a rising interest rate environment, although NLY had cheaper leverage in an environment of falling interest rates. I also hold a significant investment in NFI, as that appears to have even better control of cost of funds in a rising interest rate environment, plus higher net margins than either ANH or NLY.
NLY seems to be something of a darling with money people. The company management is well-regarded and seems to have always run the company in a straight-forward, transparent fashion. The FIDAC absorption was a good example of that. The ANH management seems to have less visibility, for better or worse. My hope has always been that ANH reaches NLY's status sometime in the next 5 years-after I've acquired more discounted shares.
ARMs may be considered a minus by some in the current environment, due to the possibility of increased refi activity (ARMs to fixed).
I agree there isn't a whole lot of history to base things on. I have also watched NLY and noticed that it has a higher price premium, and has for quite some time. I don't understand that, since it actually has a lower percentage of ARMS (vs. fixed rate) than ANH does (one of the reasons I bought ANH instead of NLY). I also am reinvesting dividends, which seems like a good strategy, expecting some share price recovery eventually.
MREITs do indeed 'normally' trade at a premium to book, 1.2x-1.3x if I remember correctly. What you have to understand is that there is simply not much history for MREITs in economic cycles; how long has ANH been around, since '96? So, analysts appear to be trying to be very conservative about the whole rate hike thing, maybe too much so. I've been watching NLY with interest for the past few weeks. It's a bit older MREIT and interestingly has retained more of its price premium. Personally, I don't have an opinion as to what the share price 'should' be, nor do I much care about the near-term price, since I'm reinvesting and lower share price just means more shares. I'm reasonably confident that the share price will recover quickly if the earnings hold up (as expected) and people finally get used to the idea of increased interest rates. As I've said elsewhere, I wouldn't be surprised if we're back at $14 by the end of the year.