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Here's Why You Should Hold on to AGNC Investment (AGNC) Now
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AGNC Investment Corp.’s (AGNC - Free Report) active portfolio-management strategy will help it navigate the current monetary policy transition.However, market conditions are likely to remain challenging in the near term, with monetary policy tightening, whereas spread widening may affect book value.
AGNC Investment adheres to re-evaluation and adjustment of its portfolio, as well as hedges amid a varying interest rate and mortgage market environment. The company is operating in a more defensive position, with significant hedge protection due to market volatility. Such prudent asset-selection efforts may offer greater stability of cash flows and bode well for long-term growth.
The long-term investment outlook for the company’s new Agency MBS investments is positive due to wider spreads and higher expected demand. Moreover, as the Fed gradually slows the pace of rate hikes, interest rate volatility will decrease and create a favorable macroeconomic backdrop for Agency MBS investments. Hence, with $45.1 billion of Agency MBS in its investment portfolio (as of Mar 31, 2023), AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed-income markets.
AGNC has solid access to attractive funding across a broad spectrum of counterparties and financing conditions, along with cash and unencumbered Agency assets of $4.1 billion as of the first-quarter end. As a result, it has flexibility in the opportunistic enhancement of its portfolio. Hence, with significant repurchase agreements outstanding used to fund investment portfolio, the company seems to be less susceptible to undergoing a credit crisis in the near term.
The operating performances of mREITs depend on conditions prevalent in the broader financial markets and the macroeconomic situation. Any volatility in the mortgage market, unfavorable change in the shape of the yield curve, interest-rate volatility and deterioration of the generic financial conditions may affect the performance of the company's investments.
AGNC Investment continues to adjust its investment portfolio in sync with the current interest rate and global economic environment. With Fed reducing its Agency RMBS portfolio, persistent spread widening and higher volatility, the company has been trimming its investment portfolio. Moreover, as it prioritizes risk and liquidity management by reducing leverage over incremental returns amid challenging market conditions, robust returns are expected to remain elusive, at least in the short term.
AGNC Investment’s hedging strategies are not designed to shield it against fluctuations in tangible net book value, resulting from changes in the spread between the company’s investments and other benchmark rates like swap and treasury rates. This exposes its business to the risk of adverse spread changes. Moreover, a higher hedging coverage ratio is typically detrimental to book value amid a low-interest-rate environment.
Currently, AGNC carries a Zacks Rank #3 (Hold). Shares of the company have declined 6.5% over the past six months compared with the 17.7% fall recorded by the industry.
Image Source: Zacks Investment Research
Stocks Worth Considering
A couple of better-ranked stocks are Invesco Mortgage Capital (IVR - Free Report) and Franklin BSP Realty Trust (FBRT - Free Report) .
Earnings estimates of Invesco Mortgage have been revised 30.8% upward over the past week. In the past six months, IVR’s shares have gained 19.1%. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for Franklin BSP Realty have been revised 9.8% upward for 2023 over the past 30 days. Shares of FBRT have gained 8.4% over the past six months. Currently, the company carries a Zacks Rank #2 (Buy).
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Here's Why You Should Hold on to AGNC Investment (AGNC) Now
AGNC Investment Corp.’s (AGNC - Free Report) active portfolio-management strategy will help it navigate the current monetary policy transition.However, market conditions are likely to remain challenging in the near term, with monetary policy tightening, whereas spread widening may affect book value.
AGNC Investment adheres to re-evaluation and adjustment of its portfolio, as well as hedges amid a varying interest rate and mortgage market environment. The company is operating in a more defensive position, with significant hedge protection due to market volatility. Such prudent asset-selection efforts may offer greater stability of cash flows and bode well for long-term growth.
The long-term investment outlook for the company’s new Agency MBS investments is positive due to wider spreads and higher expected demand. Moreover, as the Fed gradually slows the pace of rate hikes, interest rate volatility will decrease and create a favorable macroeconomic backdrop for Agency MBS investments. Hence, with $45.1 billion of Agency MBS in its investment portfolio (as of Mar 31, 2023), AGNC Investment is expected to enjoy attractive risk-adjusted returns within the fixed-income markets.
AGNC has solid access to attractive funding across a broad spectrum of counterparties and financing conditions, along with cash and unencumbered Agency assets of $4.1 billion as of the first-quarter end. As a result, it has flexibility in the opportunistic enhancement of its portfolio. Hence, with significant repurchase agreements outstanding used to fund investment portfolio, the company seems to be less susceptible to undergoing a credit crisis in the near term.
The operating performances of mREITs depend on conditions prevalent in the broader financial markets and the macroeconomic situation. Any volatility in the mortgage market, unfavorable change in the shape of the yield curve, interest-rate volatility and deterioration of the generic financial conditions may affect the performance of the company's investments.
AGNC Investment continues to adjust its investment portfolio in sync with the current interest rate and global economic environment. With Fed reducing its Agency RMBS portfolio, persistent spread widening and higher volatility, the company has been trimming its investment portfolio. Moreover, as it prioritizes risk and liquidity management by reducing leverage over incremental returns amid challenging market conditions, robust returns are expected to remain elusive, at least in the short term.
AGNC Investment’s hedging strategies are not designed to shield it against fluctuations in tangible net book value, resulting from changes in the spread between the company’s investments and other benchmark rates like swap and treasury rates. This exposes its business to the risk of adverse spread changes. Moreover, a higher hedging coverage ratio is typically detrimental to book value amid a low-interest-rate environment.
Currently, AGNC carries a Zacks Rank #3 (Hold). Shares of the company have declined 6.5% over the past six months compared with the 17.7% fall recorded by the industry.
Image Source: Zacks Investment Research
Stocks Worth Considering
A couple of better-ranked stocks are Invesco Mortgage Capital (IVR - Free Report) and Franklin BSP Realty Trust (FBRT - Free Report) .
Earnings estimates of Invesco Mortgage have been revised 30.8% upward over the past week. In the past six months, IVR’s shares have gained 19.1%. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for Franklin BSP Realty have been revised 9.8% upward for 2023 over the past 30 days. Shares of FBRT have gained 8.4% over the past six months. Currently, the company carries a Zacks Rank #2 (Buy).