brewer12345
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- Mar 6, 2003
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ANH discussion
I've got another pick for you guys: ANH-B - Anworth Mtge Asset 6.25%'B'Cv - Google Finance
The security in question is a convertible preferred stock issued by a mortgage REIT, Anworth Mortgage Asset Corp. (ANH).
The security: trades like a stock, listed on an exchange. $25 par value, and currently trading a bit over par. Pays a fixed 6.25% coupon and is callable 1/25/12. More importantly, the preferred can be converted to ANH common stock with an effective conversion price of $10.50 a share for the underlying ANH stock. The conversion price can be adjusted (in the preferred holder's favor) if ANH pays out too high a dividend.
The mortgage REIT: ANH is a relatively simple animal. It borrows money and uses it to buy a portfolio of very high grade, mostly Aaa-rated, govt agency issued mortgage backed securities. These securities have essentially no credit risk. Instead, the risk and reward relate to the intentional interest rate bet that ANH makes with shareholders' money. Specifically, ANH borrows short term and "lends long", buying MBS with a much longer maturity than the borrowings. If the yield curve un-inverts, ANH will make lots of money. If the curve stays inverted, they will limp along as they have for a while now. There are also opportunities to make some extra money by trading MBS, but its minor.
ANH currently trades around $9.40 a share and has a book value of $9.75 a share, at least as of 3/31/07.
Why this thing is attractive to me: If rates stay more-or-less, the preferred will pay its (fully-taxable) 6.25% coupon pretty much forever. Not real exciting, but not too shabby, either. If rates drop or simply de-invert, the underlying stock will go on a nice ride. Right now they borrow at 5.5% lend at 5.5% and that's not great. If you borrow at 3% and lend at 5% and lever it 7X, woo-hoo (almost 20% return on equity). When the underlying stock rises, the preferred will go with it because the preferred can be converted into ANH common. The circumstances in which the good things happen for ANH generally mean that the US economy is in trouble (Fed easing), so this is potentially a nice counter-cyclical play.
The risks: biggest one is that rates stay deeply and persistently inverted for a long time and ANH eventually craters. I don't think that's too likely, but it is possible.
The other issue with the preferred is that it does not trade a whole lot of volume, so you have to be patient if you want to buy or sell.
I've got another pick for you guys: ANH-B - Anworth Mtge Asset 6.25%'B'Cv - Google Finance
The security in question is a convertible preferred stock issued by a mortgage REIT, Anworth Mortgage Asset Corp. (ANH).
The security: trades like a stock, listed on an exchange. $25 par value, and currently trading a bit over par. Pays a fixed 6.25% coupon and is callable 1/25/12. More importantly, the preferred can be converted to ANH common stock with an effective conversion price of $10.50 a share for the underlying ANH stock. The conversion price can be adjusted (in the preferred holder's favor) if ANH pays out too high a dividend.
The mortgage REIT: ANH is a relatively simple animal. It borrows money and uses it to buy a portfolio of very high grade, mostly Aaa-rated, govt agency issued mortgage backed securities. These securities have essentially no credit risk. Instead, the risk and reward relate to the intentional interest rate bet that ANH makes with shareholders' money. Specifically, ANH borrows short term and "lends long", buying MBS with a much longer maturity than the borrowings. If the yield curve un-inverts, ANH will make lots of money. If the curve stays inverted, they will limp along as they have for a while now. There are also opportunities to make some extra money by trading MBS, but its minor.
ANH currently trades around $9.40 a share and has a book value of $9.75 a share, at least as of 3/31/07.
Why this thing is attractive to me: If rates stay more-or-less, the preferred will pay its (fully-taxable) 6.25% coupon pretty much forever. Not real exciting, but not too shabby, either. If rates drop or simply de-invert, the underlying stock will go on a nice ride. Right now they borrow at 5.5% lend at 5.5% and that's not great. If you borrow at 3% and lend at 5% and lever it 7X, woo-hoo (almost 20% return on equity). When the underlying stock rises, the preferred will go with it because the preferred can be converted into ANH common. The circumstances in which the good things happen for ANH generally mean that the US economy is in trouble (Fed easing), so this is potentially a nice counter-cyclical play.
The risks: biggest one is that rates stay deeply and persistently inverted for a long time and ANH eventually craters. I don't think that's too likely, but it is possible.
The other issue with the preferred is that it does not trade a whole lot of volume, so you have to be patient if you want to buy or sell.