ARMOUR Residential REIT, Inc. (ARR), Javelin Mortgage Investment Corp (JMI), Two Harbors Investment Corp (TWO): What to Expect From Your mREIT

Most preferred mREIT

Two Harbors Investment Corp (NYSE:TWO) is another hybrid mREIT, and it happens to be my most preferred mREIT under the prevailing challenging situation. The company has investments in Agency and non-Agency MBS. It also has credit sensitive assets and mortgage servicing rights (MSRs), which provide a cushion to the decline in its book value. Analysts at Barclays believe that it can report a spread expansion of up to 8 bps, driven by higher return from its credit-sensitive assets.

Further, the MSRs provide an attractive investment opportunity as they act as a hedge against rising rates and provide incremental income. Given the situation, Two Harbors Investment Corp (NYSE:TWO) is expected to report the lowest book value decline of 2.5% among the entire mortgage REITs sector. So for Two Harbors Investment Corp (NYSE:TWO), I believe the positives stemming from rising interest rates will hold more importance.

Conclusion

Given the challenges presented by the macro economy, some mREITs are positioned to capitalize on the benefits offered by the prevailing rising rates. For others, the negatives will be more prominent. Two Harbors Investment Corp (NYSE:TWO) is one mREIT which is positioned to benefit from the current situation. On the other hand, ARMOUR Residential REIT, Inc. (NYSE:ARR) and Javelin Mortgage Investment Corp (NYSE:JMI) are expected to report significant book value declines. So, I recommend investors buy Two Harbors.

The article What to Expect From Your mREIT originally appeared on Fool.com and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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