AGNCO - Mortgage REITs: Risk And Reward In Ultra-High Yield

• Mortgage REITs – along with other fixed income-oriented securities across the credit and maturity curve - have stabilized in recent weeks as bond market volatility has calmed following a historically rough early-2022.
• Earnings results confirmed that the challenging macro environment- marked by a "double-whammy" of rising rates and widening MBS spreads- wasn't the catastrophe to mREITs Book Values that some expected.
• Mortgage REITs are now outperforming Equity REITs for the year, and we continue to see value in a modest allocation towards higher-quality mREITs in a balanced income-focused real estate portfolio.
• Function more like a bank than a property owner, a rising interest rate environment can be a net positive for mREITs, but sharp changes in rates in either direction can wreak havoc on mREITs that are caught over-levered or improperly hedged.
• Dividend yields now average over 10%, a hearty premium to the 3.1% average for equity REITs. While some mREITs are pushing the upper limits of their payout capacity, we've seen twice as many dividend increases as decreases this year.

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