Author: Ben Wong
Covestor model: Tactical and Opportunistic
Disclosures: Long IVR, MSFT at time of writing
September 6, 2011
I sold AGNC on August 11, as it was trading in a range. It dropped later in the month, along with portfolio holding IVR, following the SEC announcement that it is seeking comments on whether it should change rules regarding REITs’ tax exemptions and the amount of leverage these firms can use. However, it seems that the SEC is just trying to clarify REITs’ current exclusions. Quoting the SEC Chairman Mary Schapiro:
As a result, we are taking this opportunity to seek public input on whether Commission guidance, and the few staff interpretations regarding the status of mortgage-related pools under the Investment Company Act, should be updated or made more clear and comprehensive. (SEC release, 8/31/11 https://www.sec.gov/news/speech/2011/spch083111mls-item2.htm)
I don’t foresee any big changes coming from the SEC regarding my REIT holdings.
In the meantime, the Fed announced in August that it will keep rates low for the next two years, another good thing for our REIT holdings. I will look to rebuild my position in AGNC if it drops closer to $27 and will also consider averaging down on IVR.
There remains some risks involved in investing in our REITs. The Fed might announce “Operation Twist” instead of QE3, a move that would narrows the spread between long and short term interest rates by selling short term bonds and buying long term on the same day. (“Market expects Operation Twist in September” Emily Flitter, Reuters, 9/2/11 https://www.reuters.com/article/2011/09/02/us-markets-bonds-outlook-idUSTRE78146D20110902)
This is not good for businesses that make money on the spread. Up ahead is Obama’s job plan speech on Sept. 8 and I’m interested to see if he will also include a mortgage relief plan.
In the other portion of our portfolio, on July 29 I covered my DELL short, too early it turned out. I also added MSFT on August 8. Both trades could have been executed with better timing.
As we continue into September, we await government policy and interventions that are currently determining market direction.
