Invesco Mortgage Capital Inc (IVR), Annaly Capital Management, Inc. (NLY): This REIT Is Diversifying to Produce Stable Returns

But when you compare the two, Invesco Mortgage Capital Inc (NYSE:IVR) has a better shot at winning. And that’s because Invesco Mortgage Capital Inc (NYSE:IVR) has diversification in both its investment portfolio and the source of its funds. Further, Annaly Capital Management, Inc. (NYSE:NLY) is more leveraged than Invesco Mortgage leaving less room for it to increase leverage and magnify results.

In contrast, American Capital Agency Corp. (NASDAQ:AGNC) has positioned its portfolio for a declining interest rate environment. And that’s why it didn’t suffer as much as its competition when the Fed launched easing programs. With rising rates we could see a sharp decline in the company’s book value. American Capital Agency Corp. (NASDAQ:AGNC) is also a pure-play mortgage REIT that invests in fixed rate Agency residential mortgage backed securities.

If the Fed decides to exit the MBS markets, American Capital will be beaten by Invesco Mortgage Capital Inc (NYSE:IVR). And that’s because Invesco’s assets are more diversified, which supports its asset yield. Further, American Capital Agency Corp. (NASDAQ:AGNC)’s investments are positioned to benefit from a declining interest rate environment, which should not be the case if the Fed decides to leave well enough alone.

Conclusion

Invesco Mortgage Capital Inc (NYSE:IVR)’s increasingly diversified business model helps provide an offset to prevailing yield compression. Further, the prime jumbo tilt in the company’s non-Agency portfolio should benefit from an improving economy and loosening mortgage credit. Of the 3, Invesco Mortgage is the best bet.

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.

The article This REIT Is Diversifying to Produce Stable Returns originally appeared on Fool.com is written by Adnan Khan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.