Annaly Mortgage (NLY) is getting taken to the woodshed over a big dividend cut. Other mortgage REITs are down as well. I have written negatively about mortgage REITs four times on this blog going back to last November.
Here is the thing with them; they are complex, leveraged and interest sensitive. Earlier I wrote about certain areas being tough to own, I forgot to include mortgage REITs.
The visibility for problems in this area have been so clear that I am shocked more people couldn't see this coming. Over the life of this blog I have had a couple of useful calls but this isn't one of them for how simple and obvious it is.
If riskless instruments yield 3%, or whatever, then something that yields 12% has a lot of risk. In my portfolio and in client portfolios have some exposure to instruments that yield 7%-8%. These clearly take more risk than the riskless 3% but there is much less risk with a 7% yielder than a 12% yielder. I think most do-it-yourselfers can wrap their hands around this quite easily.
At some point there will be a trade in these things. I don't follow them close enough to know if sentiment has washed out or not, but at some point it will and they might snap back a little in a short time. For anyone thinking about that type of trade, I would forget about the dividend. If you are nimble enough to get 10% in a short time, take it.
Wikinvest Wire
2 comments:
Might be nice to see a blog about small cap options. What is your feeling about the overall level of small cap stocks? I've been reading that some multi-cap fund managers have been shifting out of small caps, presumably because they've had their run. Your thoughts?
Roger: Can you give any websites that give info on ADR's? I am particularly interested in the type of countries (and their stocks) that you write about but am having trouble knowing what is available via ADR's. thanks.
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