ETFs To Watch On Mixed Mortgage REIT Q1 Earnings
The mortgage REIT sector started this year in the red as markets witnessed extreme volatility following concerns regarding global growth worries, weak first-quarter earnings results and a stronger dollar. Meanwhile, the continuous surge in yields weighed on the performance of the mortgage REITs. Moreover, investors were apprehending an interest rate hike right from the start of 2015. Additionally, a gradual decline in the unemployment rate increased the possibility of the hike, as it is speculated that the Fed will opt for raising the short-term rate in the later half of this year. A rising interest rate environment raises concerns about the performance of borrowed money which in turn would impact the dividend yield. These factors had an adverse effect on the first-quarter earnings results of the mortgage REITs. Mortgage REITs Earnings in Focus Among the major companies in this sector, American Capital Agency Corp. (NASDAQ: AGNC ) reported first-quarter 2015 net spread and dollar roll income of 70 cents per share (excluding estimated “catch-up” premium amortization), beating the Zacks Consensus Estimate by a cent. However, it was significantly below the previous quarter’s figure of 92 cents. Moreover, net interest income of $297 million came marginally below the Zacks Consensus Estimate of $298 million. Meanwhile the company reduced its monthly dividend rate to 20 cents from 22 cents paid earlier due to the prevailing volatile environment and a challenging interest rate scenario. Moreover, the company witnessed a decline in annualized economic return on common equity from 13.4% in the prior quarter to 7.1% in the first quarter. Another key player, Annaly Capital Management, Inc. (NYSE: NLY ) also posted mixed first-quarter results. The company reported first-quarter 2015 core earnings of 25 cents per share, missing the Zacks Consensus Estimate by 5 cents. However, net interest income of $389.8 million comfortably beat the Zacks Consensus Estimate of $347 million, but declined 26.6% year over year. Net interest margin for this quarter was 1.26% compared with 1.32% a year ago. Also, the company reported that net interest rate spread of 0.83% for the quarter decreased 7 basis points (bps) from the year-ago figure. Separately, the company said that its capital ratio (representing the ratio of stockholders’ equity to total assets) at the end of first-quarter 2015 was 14.1%, down 110 bps year over year. ETFs to Watch After releasing mixed first-quarter results on Apr. 27, shares of American Capital Agency declined nearly 4.4%. On the other hand, Annaly Capital Management’s shares rose a meager 0.5% following its earnings release on May 6. Given the lackluster first quarter, REIT ETFs with significant exposure to these mortgage REITs might be affected by the share price movements of these companies. Below we have highlighted two mREIT ETFs that are likely to remain in focus in the upcoming days. iShares Mortgage Real Estate Capped (NYSEARCA: REM ) REM tracks the FTSE NAREIT All Mortgage Capped Index, measuring the performance of the residential and commercial mREIT market in the U.S. The fund consists of 37 securities in its basket while it charges investors 48 basis points a year in fees. The product has a solid yield of nearly 12.9%. NLY and AGNC are the top two holdings of the fund occupying 14.30% and 10.99% share, respectively. This suggests a huge concentration of fund assets among the top 10 holdings, with nearly two-thirds of assets going to the top 10 securities alone. REM declined 1.8% this year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Market Vectors Mortgage REIT Income ETF (NYSEARCA: MORT ) The ETF tracks the Market Vectors Global Mortgage REITs Index, measuring the performance of companies primarily engaged in the purchase or service of commercial or residential mortgage loans. The fund is relatively less popular with an asset base of $118.1 million and has a lower dividend yield of 7.8% as compared to REM. Like REM, the above-mentioned REITs occupy the top two spots here too, having a combined exposure of roughly 30%. MORT declined 1.3% in year-to-date frame and charges 41 basis points as expenses. Original post