We are upgrading our recommendation on American Capital Agency
Corp. given the Federal Reserve's latest stance of keeping the
interest rate level low for a "considerable time" even after the
tapering of stimulus. This is because it offers a scope of reaping
decent gains over the short term. The company s second-quarter net
spread and dollar roll income (excluding "catch-up" premium
amortization) significantly exceeded the Zacks Consensus Estimate.
Results also compared favorably with the prior-quarter figure. The
company's performance benefited from the strategic decisions
implemented by the company, including maintenance of leverage
level, operating with a larger duration gap and reduction in the
size of its swaption portfolio. Moreover, it is witnessing a
recovery in its book value. Going forward, we believe that the
concerted measures to reposition its portfolio so as to meet the
current interest rate environment augur well for this company's
American Capital Agency Corp. is a real estate investment trust
(REIT) that focuses on investments in residential mortgage
pass-through securities and collateralized mortgage obligations
(CMOs), for which the principal and interest payments are
guaranteed by a U.S. Government agency or a U.S.
Government-sponsored entity. The company purchases single-family
residential pass-through securities, which are interests in pooled
loans of principal and interest including pre-paid principal, that
are made to the holders of the notes.
Collateralized mortgage obligations consist of multiple classes
with payments of principal and interest being made to note holders
based on the maturity date of the class of security. The mortgages
underlying these agency securities are fixed rate, adjustable rate
or hybrid (fixed and adjustable) securities. Agency securities
differ from traditional fixed-income investments as principal and
interest are paid on a regular schedule and there is a possibility
that the principal will be prepaid by mortgage holders if interest
American Capital Agency borrows against its investment portfolio
pursuant to a master repurchase agreement, which provides
short-term financing, typically 30 90 days. The company expects to
make a profit and pay dividend from net interest income, which is
the difference between interest earned on investments and its cost
of borrowing. American Capital Agency is externally managed and
advised by American Capital AGNC Management, LLC, an affiliate of
American Capital Ltd.
American Capital Agency Corp. (AGNC): Read the Full
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