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Here's Why You Should Retain AGNC Investment (AGNC) Stock Now
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AGNC Investment Corp.’s (AGNC - Free Report) active portfolio-management policy and prudent asset-selection efforts enable it to timely re-evaluate and adjust its portfolio according to market conditions. However, prepayment speeds have increased and this is impacting higher-coupon Agency mortgage backed securities (“MBS”).
Notably, over the recent quarters, it has reduced holdings in generic higher-coupon MBS, while adding lower-coupon ones. Since lower-coupon MBS are benefitting from Fed relief efforts and dollar roll specialness, and have limited prepayment risks, the move seems a strategic fit and will enhance AGNC Investment’s valuation gains.
The company’s decent financial position and solid access to attractive funding across a broad spectrum of counterparties offer scope to enhance its portfolio.
Moreover, ongoing purchases of Agency residential MBS by the Federal Reserve, steeper yield curve and low interest-rate volatility are creating tailwinds for the Agency mortgage market and driving Agency MBS valuations.Hence, with notable investments in Agency MBS, AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed-income markets.
Also, significant repricing in the repo market and a near-zero interest rate environment have facilitated a reduction in funding costs. Consequently, the company witnessed a sequential decline of 10 basis points (bps) in the average cost of funds to 0.05% in the fourth quarter. Given the favorable backdrop, AGNC Investment anticipates average repo costs to remain stable at 20 bps in the next several quarters. This is likely to drive margin growth in the upcoming periods.
On the flip side, the low mortgage-rate environment has led to a high level of mortgage originations and refinances. This has resulted in a spike in prepayment speeds over the past several quarters and is likely to affect the performance of mortgage real estate investment trusts, with notable residential agency exposure, including AGNC Investment, Two Harbors Investment Corp. (TWO - Free Report) , Annaly Capital Management, Inc. (NLY - Free Report) and ARMOUR Residential REIT, Inc. (ARR - Free Report) .
As for AGNC Investment, faster prepayments increased the company’s investment portfolio constant prepayment rate to 27.6% in the fourth quarter from 24.3% witnessed in third-quarter 2020. A challenging prepayment backdrop is a near-term headwind to book-value growth, net interest income, spread and asset yield.
Further, the company’s average asset yield has witnessed a continued decline since 2019. Higher premium amortization costs borne by faster prepayment expectations and portfolio turnover being reinvested at lower prevailing asset yields areleading to asset yield erosion and spread contraction.
Moreover, the company believes that given the volatility in the current market, risk and liquidity management needs to be prioritized over incremental returns, at least in the short term. So, robust returns are expected to remain elusive.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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Here's Why You Should Retain AGNC Investment (AGNC) Stock Now
AGNC Investment Corp.’s (AGNC - Free Report) active portfolio-management policy and prudent asset-selection efforts enable it to timely re-evaluate and adjust its portfolio according to market conditions. However, prepayment speeds have increased and this is impacting higher-coupon Agency mortgage backed securities (“MBS”).
Notably, over the recent quarters, it has reduced holdings in generic higher-coupon MBS, while adding lower-coupon ones. Since lower-coupon MBS are benefitting from Fed relief efforts and dollar roll specialness, and have limited prepayment risks, the move seems a strategic fit and will enhance AGNC Investment’s valuation gains.
The company’s decent financial position and solid access to attractive funding across a broad spectrum of counterparties offer scope to enhance its portfolio.
Moreover, ongoing purchases of Agency residential MBS by the Federal Reserve, steeper yield curve and low interest-rate volatility are creating tailwinds for the Agency mortgage market and driving Agency MBS valuations.Hence, with notable investments in Agency MBS, AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed-income markets.
Also, significant repricing in the repo market and a near-zero interest rate environment have facilitated a reduction in funding costs. Consequently, the company witnessed a sequential decline of 10 basis points (bps) in the average cost of funds to 0.05% in the fourth quarter. Given the favorable backdrop, AGNC Investment anticipates average repo costs to remain stable at 20 bps in the next several quarters. This is likely to drive margin growth in the upcoming periods.
Shares of this Zacks Rank #3 (Hold) company have rallied 11.6% over the past three months compared with the industry’s growth of 10.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
On the flip side, the low mortgage-rate environment has led to a high level of mortgage originations and refinances. This has resulted in a spike in prepayment speeds over the past several quarters and is likely to affect the performance of mortgage real estate investment trusts, with notable residential agency exposure, including AGNC Investment, Two Harbors Investment Corp. (TWO - Free Report) , Annaly Capital Management, Inc. (NLY - Free Report) and ARMOUR Residential REIT, Inc. (ARR - Free Report) .
As for AGNC Investment, faster prepayments increased the company’s investment portfolio constant prepayment rate to 27.6% in the fourth quarter from 24.3% witnessed in third-quarter 2020. A challenging prepayment backdrop is a near-term headwind to book-value growth, net interest income, spread and asset yield.
Further, the company’s average asset yield has witnessed a continued decline since 2019. Higher premium amortization costs borne by faster prepayment expectations and portfolio turnover being reinvested at lower prevailing asset yields areleading to asset yield erosion and spread contraction.
Moreover, the company believes that given the volatility in the current market, risk and liquidity management needs to be prioritized over incremental returns, at least in the short term. So, robust returns are expected to remain elusive.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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