mREIT ETFs Sunk By American Capital Earnings
On a day that is a sea of green for most stocks and equity-based ETFs, some funds are seeing red and it is not just the inverse ETFs designed to rise when the market falls. Mortgage real estate investment trust, or mREIT, ETFs are being dragged lower by American Capital Agency (NASDAQ: AGNC) reported a quarterly loss of $557 million, or $1.57 per share, late Thursday.
Shares of American Capital are tumbling seven percent Friday on volume that was more than triple the daily average with about three hours left in the trading day. Not good news for the yield-hungry investors that have been seduced by the double-digit yields sported by American Capital and its rivals.
With today's haircut, American Capital has a market capitalization of about $10.4 billion. That may not sound like much, but it is enough to make the company, along with rival Annaly Capital (NYSE: NLY), the Apple (NASDAQ: AAPL) and Exxon Mobil (NYSE: XOM) of mREIT ETFs.
Translation: As has been seen with Apple and ETFs, it is fine to have a large weight to the stock...as long the stock is going up. When the opposite is true, the situation can get ugly.
Such is life for the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSE: REM). This $1.25 billion ETF, a favorite of investors because of its 11.07 percent 30-day SEC yield, is down 2.3 percent today on heavy volume.
REM dominated by Annaly and American Capital. The latter has adversely affected the former today and that means at least 38.5 percent of REM's weight is not being cooperative. REM has sunk to a two-week low, Barron's reported.
REM has a rival in the form of the almost $130 million Market Vectors Mortgage REIT Income ETF (NYSE: MORT). MORT, which turns two in August, is no slouch when it comes to yield either with a 30-day SEC yield of nearly 10.3 percent.
However, MORT is still down nearly two percent because of its heavy allocations to Annaly and American Capital. Those two stocks combine for nearly 30 percent of the ETF's weight. American Capital gets a weight of 14.2 percent, more than two-and-a-half times MORT's third-largest holding, Chimera Investment (NYSE: CIM).
Bottom line: Like some other ETFs, MORT and REM have excessive weights to just one or two stocks. And like some of those others ETFs, MORT and REM have been exposed due to a disappointing earnings report by one of those companies.
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