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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area
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To: KaiserSosze who wrote (37353)3/7/2013 9:09:04 AM
From: Crossy  Read Replies (1) of 37387
 
Kaiser,
mREITs and especially amREITs might become the next key players
in the mortgage space (to finance agency mortgage paper), now that
GSEs role is going to be reduced and banks will be impacted "risk-reducing"
Volcker rules and Basel-III standards. So who can fill the gap ?

Credit hedge funds and even more so mREITS will take over IMHO. AMREITS purchase
Agency paper only but leverage up to 10times equity - so INTEREST RATE
RISK is the issue here, not credit risk. MREITS purchase both - agency and
non agency paper. Their leverage is much lower (often under 4) but they have
to shoulder some CREDIT RISK.

My take: as the ultra-accommodative FED easing (QE1-QE3/4) is going to
end sometime (in 2015 at the latest), I would gradually de-emphasize AMREITS
and buy more MREITS instead.

Both AGNC and ARR are well managed, but both are AMREITS. I would rather
go the other way and get involved with credit risk than interest rate changes.
My favourites in the MREIT space are IVR, TWO, RWT, ARI, PMT and especially RSO.

RSO is special because it is a CMBS oriented REIT (ARI is also mostly commercial mtg).
They also have a big "commercial finance" arm - just small enough (I think <25%)
so they pass their REIT tests. It's very profitable, mostly small-ticket leasing.
Leverage for RSO is really low now (around 2.5) - they are buying more CLOs
instead of their CMBS/high quality CDO focus after the crisis (2009-2010)

hope this helps
CROSSY
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