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American Capital Agency Corp. Message Board

  • stockmeister3 stockmeister3 Dec 18, 2012 10:17 PM Flag

    AGNC undervalued relative to MTGE

    AGNC is undervalued relative to MTGE. AGNC (@$31.13) is currently is trading $1.36 below its 3rd qtr BV whereas MTGE (@$25.45) is trading $.36) above its 3rd qtr BV.

    AGNC is much more liquid that MTGE making it easier to enter and exit positions (options and stock) which should - under normal circumstances - cause it to trade a premium to its less liquid li'l brother MTGE.

    MTGE's 'hybrid' nreit status is currently the 'rage', but it is mostly a mirage as most all of it's earnings and holdings are agency mbs. The non-agency mbs MTGE holds is mostly legacy stuff from before the offering as there is little securitized jumbo mbs for sale and the subprime/non-performing stuff they bought initially is now expensive and not capable of producing the kind of non-leveraged returns equal to what you can get from leveraged agency returns even at today's reduced spreads.

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    • "Stockmeister" you couldn't be more wrong. Mtge Adds non-legacy assets every quarter now up to 27 percent of capital as of q3. During the conference calls Gary expects to increase the non-agency assets as prepays continue to develop in the landscape. Please review the latest conference calls to realize that you have no idea what you're talking about. American Capital mortgage will outperform American Capital agency over the next year and non-agencies will look increasingly attractive Given the prepayment landscape and declining spreads on agency assets as the fed is a buyer of those assets.

    • my concern overall - for any of these like - NLY, MTGE or AGNC
      1 - how will they compete against the Fed playing in the same MBS sandbox
      2 - when the sandbox becomes a commodity relative to low interest rates,
      how to handle the non-agency paper ?

      I just sold my NLY - and was thinking of buying AGNC/MTGE prior to the ex-div,
      but then have been wrestling with the entire area of - MBS vs non vs future interest rates.

      • 1 Reply to ps56k
      • ps56k, they aren't going to try and compete with the fed very much.
        Most reits have stopped doing secondary offerings to raise funds and buy MBS.
        They will hunker down with what they have and try to ride this out.
        This is also why you see reits now doing buy backs.
        They went from expanding to contracting now that they are trading below book.

        The exception is the hybrids. They can go out and buy non agency assets.
        But most of them I think will only take on so much non-agency.
        So even they have a limit.

        This is why low CPR is so important.
        The reits with high CPR will be turning over a lot of their MBS to prepay and have to go out and buy more.
        They will be buying low yielding MBS right now priced around 106 - 107 which isn't good.
        Some of this can get offset by purchasing non agency assets or with share buy backs.
        But I don't think anyone is immune to this.

    • stockmeister3, maybe you need to factor in flexibility going forward on the prices as well.
      And MTGE has a higher spread, lower cpr, etc.

      • 1 Reply to xxavatarxx
      • xxavatarxx - acknowledge that MTGE's 3rd qtr agency CPRs (6.7% Actual/12.7% Projected) are slightly better than AGNC's (9% Actual/14% Projected) - but these differences are slight and I think the reason that MTGE has fared better recently is the perception that it's hybrid status gives it increased flexibility to buy better performing non-agency mbs - which for the reasons that I articulate in my original post is largely a MYTH - ie - there just isn't enough non-agency mbs out there to buy - it's expensive and it can't be leveraged or financed cheaply like agency mbs.

        I don't think it's a coincidence that MTGE closed out on Friday's Ex date AT it's 3rd qtr BV - $25.21. AGNC - on the other hand closed out $1.34 below its $32.49 3rd qtr BV. AGNC also has more undistributed taxable income, etc. But perception is reality and right now everyone (wrongly IMO) believes that there is lots more upside to the hybrid reits. Again - the limited liquidity of MTGE is a detriment to holding the stock IMO - can't easily get out and very hard to trade options.

        I think there was some tax selling in AGNC - but it may or may not matter in the short run. Likely won't get clarity in the mkt until after the fiscal cliff issues are resolved and the mreit earnings calls are held in early Feb. Now days - holding anything for 1 month can seem like an eternity - but perceptions can change quickly ....

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