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Subject:  Re: 10 year treasuries Date:  1/11/2014  2:22 PM
Author:  aleax Number:  35175 of 36394

I added to a position in PMT (REIT common) and have been thinking about researching NLY again with an eye to the common (or to closing the preferred position since the common's yield is almost too good).

Care to give me an elevator pitch on PMT? My 2 cents on NLY is that after Mike F passed the company is in a dangerous place... he was really the glue and I am not sure I would make a bet that new problems won't creep in that only he would have been able to see. They are an absolute giant now... I'd be very wary personally. I have no great in depth knowledge but I do focus on financial companies a lot, and high level + great reputation under old management + new management is dangerous IMO.

Me, I don't see any of NLY's preferred stocks as being at all appetizing at this time. The yield on the common looks crazy high just because its stock price has _already_ crashed in 2013 -- from highs above 16 (in the spring before the word `taper` was first uttered;-), down to lows below 10 (now recovered to 10.24).

But management has been doing the right things to keep the firm solid for the future -- reducing payouts (steadily down: .45, .40, .35, and now .30, over 4 quarters), which of course is part of what crashed the stock price, but also already enabled a substantial reduction in leverage and some diversification from residential mortgages to steadier commercial ones. I like what I see there (and posted about it in two free TMF boards - the NLY-specific one, and the general one on REITs).

Equity REITs (esp. triple-nets, I think) are of course steadier and safer than mortgage REITs, but in a well-diversified balanced portfolio I think there's space for both kinds (as well as some more specialized REITs like, say, PCL and AMT). In 2014, I aim to increase my REIT exposure target, from about 5%, to about 10% of my securities.

I'm also slowly changing my asset class balance, which was 75/25 between equities and debentures in early 2013 and for years before -- it's now 70/30 and on its way to 65/35. This includes REITs -- I count as `equities` the common stock of equity REITs, as `debentures` all preferred stocks and common stock of mortgage REITs.

As I mentioned in another post here earlier today, Barron's sees REITs as one of their three best income investments for 2014 (they didn't in 2013, and were proven right) -- #3, with #2 being municipal bonds.

I had reached the same conclusion, and started re-positioning my portfolio accordingly, a bit earlier than that, but it's always nice when one sees professionals agreeing (plays to one's confirmation bias, I guess;-)...
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