Hybrid mortgage REITs and names with prepay-protected portfolios like Invesco Mortage Capital (IVR) and American Capital Mortgage (MTGE) are preferred over agency-only REITs with more exposure to refinance activity and rate moves, says Douglas Harter, Vice President at Credit Suisse Group.
“We have two preferences. One is we prefer the hybrid mortgage REITs over the agency only, and we like the investment flexibility that that hybrid offers you so that you can invest in both agency and nonagency,” Harter said. “The second preference is we prefer, within the agency portfolios of these companies, companies that have more prepay protected portfolios.”
“So fitting into those two themes, I would say the two names that we like the best right now would be Invesco Mortgage and American Capital Mortgage,” Harter said.
Harter further says REITs are expected to continue double-digit dividend yields over the next couple of years. He says that, “while we are past peak returns, I do think that that level of low double-digit returns should be sustainable for the next two-plus years. And in this low rate environment, that remains attractive.”
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