American Capital Agency Corp. (AGNC): The Fed’s Asset Purchases Continue to Hurt mREITs

In particular, at the current rate the Fed’s holdings of MBS will be $1.4 trillion by year end, approximately 30% of the market. When the Fed comes to selling, it will be selling into a thin market and prices will fall, raising yields.

If and when this happens, mREITs and their investors will benefit from higher interest spreads, more income and higher dividends, but for now the slaughter will continue and yields will carry on falling. Buying into mREITs now is effectively fighting the Fed, and that is a fool’s errand.

For more information on the effect the Fed’s unwinding will have on mREITs click here.

Conclusion

So overall, mREITs have had a tough time over the last year thanks to the Fed’s open market operations, but they could be in for a re-rating if the Fed stops buying. However, based on the last year’s performance, investors could continue to see declining returns this year.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article The Fed’s Asset Purchases Continue to Hurt mREITs originally appeared on Fool.com.

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