Mortgage reits. Have looked again at several after reading Saturday's Barron's interview with Charles Rinaldi, Portfolio Manager, Wells Fargo Advantage Small Cap Value Fund.
"In November, he started buying Capstead Mortgage (CMO), a Dallas-based real-estate investment trust, or REIT, that invests primarily in mortgages issued by Fannie Mae (FNM), Ginnie Mae and Freddie Mac (FRE). Despite this seemingly toxic brew, Rinaldi considers it a low-risk total-return bet on the government's full faith and credit.
Capstead makes its money mostly through leveraged investments based on the spread between its own financing costs and yields on these mortgage-backed securities, with their implied guarantees as government-sponsored enterprises. Most of its earnings are distributed as dividends, which he forecasts at about $2.25 in 2008 and 2009. Rinaldi bought when the spread between Capstead's costs and investments fell below 50 basis points. By the end of June, the spread had ballooned back over 200 basis points."
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Seems to me that's not a bad way to play: Borrow cheaply to buy higher yielding mortgages that - maybe - are going to be insured not only by FRE/FNM but also by the federal government as they step in to help failing FRE/FNM (which apparently are heading for bk, according to media gossips). Not sure which mortgages might be protected or how, but at current stock prices these mortgage reits "secured" by FNM/FRE could be worth a small buy. I presume at this point, these mreits have deleveraged somewhat, so their risk of bk is smaller now for that reason. (They may have other reasons to go bk though -g- , e.g. abrupt rate spreads.).
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Chasing dividends has resulted in much pain for me over the past 12 months. I'm reluctant to do it now for any meaningful amounts. For a small bet though, I'll take a few shares in a couple/three mreits. I have a few shares now of these:
finance.yahoo.com
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(I find KyrosL on the 50% Gains board to have a good view of the situation with mreits.) |
