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A Look at Mortgage REIT ETFs Post Q3 Earnings

Zacks Equity Research
Earnings beat by two leading mortage REITs brings these two ETFs in focus.

Flattening of the yield curve has acted as a headwind for mortgage REITs (mREITs) lately.  This is because mortgage REITs borrow money at short-term interest ratesand when they buy mortgages, they lend it at rates near the higher long-term rates. But overall, rising rate environment is a negative for the space known for hefty yields. (read: Fed Meet Signals December Rate Hike: ETFs That Gained).

Against this backdrop, we have highlighted the earnings of a couple of major players in the mortgage REIT sector, AGNC Investment Corp AGNC and Annaly Capital Management Inc NLY who reported results on Oct 25 and Nov 1, respectively. Both these companies met the Zacks Consensus Estimate.

AGNC Investment Corp

AGNC reported earnings of 61 cents, which came in line with the Zacks Consensus Estimate and were up 3.4% from the year-ago quarter. Book value per common share was $18, down from $19.78 as of Sep 30, 2017. Annualized net interest spread, including TBA dollar-roll income (excluding estimated catch- up premium amortization benefit), for the quarter was 1.30%, down from the previous quarter’s 1.35%.

However, Net interest income NII totaled $188 million, higher than previous quarter’s $177 million. Dividend of 18 cents per share was announced for each of the months of Q3.

AGNC has a Zacks Rank #3 (Hold) and has a Value and Momentum Score of A each (read: Want Large Caps & Guard Against Trade War Too? Play These ETFs).

Annaly Capital Management Inc

Annaly reported earnings of 30 cents, in line with the Zacks Consensus Estimate and flat with the year-ago quarter. Annaly’s book value per share came in at $10.03 as of Sep 30, 2018, compared with $10.35 as of Jun 30, 2018. Net interest spread excluding premium amortization adjustment (PAA) was reported at 1.14% for the third quarter, down 3.4% from the previous quarter.

The quarter’s NII was $315.6 million, down 5.5% from the previous quarter. Annaly has a Zacks Rank #3 and a Value Score of A.

ETFs to Watch

The Fed is on course for another rate hike in December with a few more expected next year. This will result in rising rates, affecting the bottom line and book values for these companies as well constraining  dividend paying paying capacity. Below we have highlighted two mREITs ETFs that have significant exposure to the abovementioned companies (see: all the Real Estate ETFs here).

iShares Mortgage Real Estate ETFREM

The fund tracks the FTSE NAREIT All Mortgage Capped Index, measuring the performance of the residential and commercial mREIT market in the United States. It comprises 36 holdings with the two mentioned companies occupying 28.9% weight and constituting the top two holdings in the fund. The fund’s AUM is $1.2 billion and expense ratio is 0.48%. The fund has returned 3% over the past month (as of Nov 13). It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

VanEck Vectors Mortgage REIT Income ETFMORT

The fund tracks the MVIS Global Mortgage REITs Index, which is intended to track the overall performance of U.S. mortgage real estate investment trusts. It comprises 26 holdings with the aggregate weight of the mentioned companies being 19%. The fund’s AUM is $144.6 million and the expense ratio is 0.41%. The fund has returned 3.3% over the past month (as of Nov 13). It has a Zacks ETF Rank #3 with a Medium risk outlook.

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REITS/MORTGAGE (REM): ETF Research Reports
 
VANECK-MTG REIT (MORT): ETF Research Reports
 
AGNC Investment Corp. (AGNC) : Free Stock Analysis Report
 
Annaly Capital Management Inc (NLY) : Free Stock Analysis Report
 
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