Mortgage REITs have not been the most recommended investment in recent times. Thanks to the various programs conducted by the Fed to stimulate the US economy. Particularly QE3 brought a lot of damage to the sector. While we see no end in sight for the stimulus, the mortgage REITs have made some strategic moves to outmaneuver the Fed. These moves have resulted in a boost of confidence in the mortgage REITs sectors. The sector is further boosted by confidence with insider buying. This article presents to you four such mortgage REITs with recent insider purchases.
Annaly Capital Management
Annaly Capital Management, Inc. (NYSE:NLY) is the nation’s largest mortgage REIT that exclusively invests in Agency residential mortgage backed securities. The company’s net interest rate spread was hurt significantly during the past two quarters due to the Fed’s stimulus. To outmaneuver the Fed’s QE3, the company proposed the acquisition of CreXus Investments, a commercial mortgage REIT. The acquisition of CreXus’ shares has begun. Annaly has also recently proposed the shift of management to an external manager that hires Annaly’s current management. This move, if approved will save millions of dollars for Annaly Capital Management, Inc. (NYSE:NLY) in the short-term.
These moves coupled with a reversed macroeconomic environment will bring improvement in the coming quarter’s bottom line.
American Capital Agency
American Capital Agency Corp. (NASDAQ:AGNC) reported two of its officers buying over 71k shares each in March. The CEO also bought 10k shares of the company at an average price of $32.36 per share during February 2013. Overall, over 175k shares of the company were bought since the beginning of the year by some of the company’s most prominent insiders.
American Capital Agency is a pure-play mortgage REIT. It remained the most favored mREIT within the Agency mortgage REITs sector due to its superior security selection ability. This superior security selection ability led to one of the lowest prepayment rates at American Capital during recent quarters. The company is considered to have MBS with low coupons, low loan balances and low LTV. These attributes are considered highly prepayment protected.
CYS Investments
The month of February saw significant insider buying at CYS Investments Inc (NYSE:CYS). Insiders, including the CEO of the company bought shares, demonstrating their confidence in the company’s future. Overall, over 240k shares of the company were purchased since the beginning of the year. The CEO increased his stake by adding around 159k shares.
CYS Investments operates as a pure-play mortgage REIT and has large chunks of 15-year fixed rate Agency paper. The company is also invested in hybrid ARMs and posted prepayments speeds of 17.6% at the end of the fourth quarter of 2012. This is lower than Annaly Capital Management, Inc. (NYSE:NLY) prepayment speeds of 19%.
Conclusion
Mortgage rates have climbed since the beginning of the year. These increased rates will lead the aforementioned mREITs to post higher spreads in the coming quarters. Looking at the improved situation, insiders are busy increasing their stakes in Annaly Capital, American Capital and CYS Investments. Therefore, I believe it is time for you to add Agency mortgage REITs in your regular income portfolio.
The article 3 Agency Mortgage REITs Insiders Love originally appeared on Fool.com and is written by Adnan Khan.
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