Tag Archives: capital

ETFs To Watch On Mixed Mortgage REIT Q1 Earnings

The mortgage REIT sector started this year in the red as markets witnessed extreme volatility following concerns regarding global growth worries, weak first-quarter earnings results and a stronger dollar. Meanwhile, the continuous surge in yields weighed on the performance of the mortgage REITs. Moreover, investors were apprehending an interest rate hike right from the start of 2015. Additionally, a gradual decline in the unemployment rate increased the possibility of the hike, as it is speculated that the Fed will opt for raising the short-term rate in the later half of this year. A rising interest rate environment raises concerns about the performance of borrowed money which in turn would impact the dividend yield. These factors had an adverse effect on the first-quarter earnings results of the mortgage REITs. Mortgage REITs Earnings in Focus Among the major companies in this sector, American Capital Agency Corp. (NASDAQ: AGNC ) reported first-quarter 2015 net spread and dollar roll income of 70 cents per share (excluding estimated “catch-up” premium amortization), beating the Zacks Consensus Estimate by a cent. However, it was significantly below the previous quarter’s figure of 92 cents. Moreover, net interest income of $297 million came marginally below the Zacks Consensus Estimate of $298 million. Meanwhile the company reduced its monthly dividend rate to 20 cents from 22 cents paid earlier due to the prevailing volatile environment and a challenging interest rate scenario. Moreover, the company witnessed a decline in annualized economic return on common equity from 13.4% in the prior quarter to 7.1% in the first quarter. Another key player, Annaly Capital Management, Inc. (NYSE: NLY ) also posted mixed first-quarter results. The company reported first-quarter 2015 core earnings of 25 cents per share, missing the Zacks Consensus Estimate by 5 cents. However, net interest income of $389.8 million comfortably beat the Zacks Consensus Estimate of $347 million, but declined 26.6% year over year. Net interest margin for this quarter was 1.26% compared with 1.32% a year ago. Also, the company reported that net interest rate spread of 0.83% for the quarter decreased 7 basis points (bps) from the year-ago figure. Separately, the company said that its capital ratio (representing the ratio of stockholders’ equity to total assets) at the end of first-quarter 2015 was 14.1%, down 110 bps year over year. ETFs to Watch After releasing mixed first-quarter results on Apr. 27, shares of American Capital Agency declined nearly 4.4%. On the other hand, Annaly Capital Management’s shares rose a meager 0.5% following its earnings release on May 6. Given the lackluster first quarter, REIT ETFs with significant exposure to these mortgage REITs might be affected by the share price movements of these companies. Below we have highlighted two mREIT ETFs that are likely to remain in focus in the upcoming days. iShares Mortgage Real Estate Capped (NYSEARCA: REM ) REM tracks the FTSE NAREIT All Mortgage Capped Index, measuring the performance of the residential and commercial mREIT market in the U.S. The fund consists of 37 securities in its basket while it charges investors 48 basis points a year in fees. The product has a solid yield of nearly 12.9%. NLY and AGNC are the top two holdings of the fund occupying 14.30% and 10.99% share, respectively. This suggests a huge concentration of fund assets among the top 10 holdings, with nearly two-thirds of assets going to the top 10 securities alone. REM declined 1.8% this year and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Market Vectors Mortgage REIT Income ETF (NYSEARCA: MORT ) The ETF tracks the Market Vectors Global Mortgage REITs Index, measuring the performance of companies primarily engaged in the purchase or service of commercial or residential mortgage loans. The fund is relatively less popular with an asset base of $118.1 million and has a lower dividend yield of 7.8% as compared to REM. Like REM, the above-mentioned REITs occupy the top two spots here too, having a combined exposure of roughly 30%. MORT declined 1.3% in year-to-date frame and charges 41 basis points as expenses. Original post

Stealing Someone’s Homework

Unit trusts are a simple way to invest, but their fee structures may be cost prohibitive for some. Unit trust companies, in their fact sheets, provide proven selection processes that one is able to replicate. By using their proven track records, one is able to develop a nice portfolio that works well with a “Buy and Watch” philosophy. Equity unit investment trusts are interesting allocation vehicles that have been around since the Investment Company Act 1940. They are investment companies, and the easiest description one can give is they provide a list of researched stocks that one can hold for periods ranging from 15 months to four years. They are unmanaged, as the stocks are selected with the philosophy of holding them throughout the maturity period. When the trust matures, one can take the value of the investment at NAV, or reinvest everything in another portfolio as a “rollover”. Rollovers are usually free. Conceptually, I like them, because they fit well within a “Buy and Hold” strategy, but allow one to make periodic changes over the years. The fee structures, though, make them prohibitive for those who are looking for a way to keep costs down. Fees for First Trust’s Capital Strength Portfolio average an initial 1.975% per year. Invesco’s Dividend Income Leaders Strategy Portfolio has an average annual initial fee of 2.36%. Both of these annual fees are reduced to 1.475% and 1.56% respectively with the free rollovers they provide. There are break points for high net worth investors where the fees can be reduced to 0.725% for First Trust and 0.32% for Invesco. Don’t misread as one saying these strategies do not work. They do. The question is whether one wants to pay the fees. If you don’t, then steal their homework. If one studies the fact sheets these companies provide, they do have fairly easy strategies that can be replicated on one’s own. Take the Capital Strength Portfolio for example. The fact sheet has these parameters for its stock selection process: Begin with the S&P 500 Cash greater than $1 billion Long Term Debt/Market Value of Equity < 30% Return on Equity > 15% Cash Flow Analysis and Analyst Judgment Hold for 24 months Does this strategy work? It sure does. I ran a general backtest to see how this approach performed since 1989. The results? How does an average annual return of 14.46% (σ = 23.82%) work for you? The S&P 500 averaged 10.14% during the same period; an excess of 430 basis points that is nothing to sneeze at. Given that a basic portfolio screen returns around 30 stocks, this is a fairly manageable strategy if one is willing to let the strategy play out over a two year period. The following table provided is a list of potential stocks for a 24 month portfolio: Ticker Name AAPL Apple Inc ACN Accenture PLC ADP Automatic Data Processing Inc. AFL AFLAC Inc AGN Allergan Inc. AVGO Avago Technologies Ltd BEN Franklin Resources Inc BIIB Biogen Idec Inc CA CA Inc CMI Cummins Inc. CTSH Cognizant Technology Solutions Corp EXPD Expeditors International of Washington Inc. FLR Fluor Corp GD General Dynamics Corp GOOG Google Inc GRMN Garmin Ltd INTC Intel Corp JNJ Johnson & Johnson LLY Eli Lilly and Co LRCX Lam Research Corp MA MasterCard Inc MSFT Microsoft Corp NKE Nike Inc PCLN Priceline Group Inc (The) PG Procter & Gamble Co (The) PH Parker-Hannifin Corp QCOM QUALCOMM Inc. SLB Schlumberger Ltd TROW T. Rowe Price Group Inc WDC Western Digital Corp XOM Exxon Mobil Corp YHOO Yahoo Inc Is there another way, though? What if you want to be a completely passive investor, but like this approach to stock selection? Well, there is an option for that too. Using the Capital Strength Index, which has many of the same screening criteria, The First Trust Capital Strength ETF (NASDAQ: FTCS ) is a nice way to go. It is a managed ETF with a moderate fee structure (0.76% gross), and has performed nicely since inception, and still beats the S&P 500. The way I see it, this is a nice passive way to invest, and still get performance from one’s portfolio. The 30 or so stocks are easy to watch and hold, and one only has to restructure biannually. It is an idea one should consider, if indexing is not part of the strategy. It is suggested here to study the strategies, and find one that works for you. If you would rather someone else do the work, then hire the companies and buy one of their portfolios. If that is even too much work, buy the ETF. Happy Investing! Disclosure: The author is long CTSH, QCOM. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Oxford Lane Capital: Cash Flow Jumps, But So Do Paper Losses

Summary Oxford Lane Capital announces sharp increase in cash flow since last quarter. Last year’s newly acquired CLO assets are now starting to distribute cash, tripling cash flow from one quarter ago. Meanwhile, however, the assets pumping out this additional cash have dropped in value as credit risk assets in general have dropped in recent months. So cash flow up, but NAV down. Will the market be happy or sad about this? And how will the “smart money” react? Wish I knew. Oxford Lane Capital (NASDAQ: OXLC ) announced its quarterly results just after the market close on Tuesday and there was plenty for both optimists and pessimists to react to. Those who focus on cash flow (since that’s what drives CLO distributions and the distributions from funds like OXLC that buy CLO equity) were pleased to see that OXLC’s “estimated distributable net investment income” which is the cash flow that funds its 60 cents a quarter dividend, was $1.01, three times the level of last quarter, and 25% higher than it was a year ago when the fund decided to both raise its dividend and pay out a special one. The increased cash flow is no surprise, since OXLC raised considerable new equity a year ago, invested it in new CLO equity and has been waiting for that newly purchased equity to start making cash distributions to the fund. It can take up to 2 quarters for newly purchased CLO equity to start making payments to its equity holders. Three months ago OXLC reported that it had about $172 million of CLO investments that were still in the pre-distribution stage, out of $330 million total assets. That’s quite a drag, and explains why the portfolio as a whole, including the non-distributing assets, had only yielded 2.9% for the preceding quarter (annualized, that’s only 11.6%). But this time around, only $90 million, instead of $172 million, is in that pre-distribution stage, out of total assets of $354 million, and the portfolio as a whole is distributing 5.0% to OXLC, which is 20% annualized. With more assets “working,” it is no surprise the cash flow available to fund distributions is higher. Next quarter should improve further, as some of the current $90 million of pre-distribution equity begins its distributions to equity holders as well. To me this augurs well for OXLC’s ability to continue to meet its current distribution, which works out to a yield of over 15%. Along with that good news, OXLC also reported that its net asset valuation (which is largely model-based since there is very little trading or market for most seasoned equity tranches of CLOs) had dropped considerably since the last quarter, from $15.54 to $14.09. Although this just reflects paper losses in the valuation of CLOs that are still pumping out the same cash they were previously, this will undoubtedly upset and perhaps even panic some OXLC holders who take seriously the NAV number (which I don’t). To summarize, the fund is pumping out more cash than ever before, but its NAV has dropped because of unrealized paper losses on the portfolio generating that increasing cash flow. One interesting thing about OXLC trading Tuesday: · During the day, before the announcement of the greatly increased cash flow, the stock jumped 25 cents. · After hours trading, after the announcement was made public, the stock dropped back 30 cents. · Which was the smart money? · My guess is that the “cash flow increase” is the more important factor, compared to the “paper loss” drop in the NAV. · Time will tell. Disclosure: The author is long OXLC. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.