AGNC Investment Corp. (AGNC -1.07%) had a strong month in May, with its stock price climbing 11.4%, according to S&P Global Market Intelligence.
The real estate investment trust (REIT) outperformed both the S&P500, which was essentially flat in May, up 0.2%, and the Nasdaq Composite, which was down 1.9% in May. AGNC remains down 19% year-to-date, trading at around $12 per share.
AGNC Investment is a mortgage REIT with substantially all of its portfolio invested in government agency mortgage-backed securities (MBS), such as those offered by Fannie Mae and Freddie Mac. Since they are backed by the US government, the risk is generally lower than other mortgages.
It was a difficult first quarter for AGNC Investment as it posted a net loss of $651 million and saw its book value drop to $13.12 per share from $15.75 the previous quarter and $17.72 after. the first quarter of 2021. This was due to the worst quarter in 40 years for bond markets as interest rates rose, the yield curve flattened and spreads widened, leading to underperformance in MBS .
AGNC President and CEO Peter Federico said in the earnings release:
These conditions have led to a sense of risk aversion that has pressured equity markets and caused unprecedented price declines in fixed income markets, as evidenced by the Bloomberg Aggregate Bond Index, the measure the broadest in the fixed income market, posting its worst quarterly performance in more than 40 years.
Still, amid the lackluster Q1 report, the stock price rose on its May 2 release. Why ?
The stock price surged on the Q1 release based more on the outlook than recent past performance. As Federico explained, AGNC’s outlook for existing and new agency MBS has improved as AGNC has repositioned the portfolio to take advantage of rising rates and higher yields to generate better returns and interest income:
Following the very significant repricing of Agency MBS over the past two quarters, we now believe leveraged returns across many segments of the Agency MBS market are attractive on both an absolute and relative basis. and adequately compensate investors for the risks associated with the current environment.
The improved outlook and attractive monthly dividend of $0.12, yielding 11.8%, make AGNC a decent option, primarily for income investors.