Why Shares of American Capital Agency Have Soared 28% Higher in 2014

The mortgage REIT sector is on fire, with one of the biggest beneficiaries being American Capital Agency (NASDAQ: AGNC  ) . Since the beginning of the year, shares of the mREIT are up nearly 30%.

A closer look reveals two reasons for this performance. In the first case, much of American Capital's recent success seems tied to its miserable performance in 2013. Since peaking near the end of 2012, its shares proceeded to drop 48% during the following 15 months. It seems reasonable to conclude, in other words, that investors were finally convinced that American Capital was a bargain at around $20 a share.

AGNC Chart

Source: YCharts.

The second reason has to do with interest rates -- and mortgage rates, in particular. This is because the value of an mREIT's portfolio of mortgage-backed securities is inversely correlated with long-term interest rates.

When rates rocket higher, as they did last year, MBS prices plummet. By contrast, the tides turned this year thanks to a stabilization of interest rates relative to the extreme volatility of 2013.

It's for these reasons, in turn, that Motley Fool contributor John Maxfield believes American Capital Agency's stock has soared this year.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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Related Tickers

8/27/2015 4:00 PM
AGNC $19.55 Up +0.44 +2.28%
American Capital A… CAPS Rating: ****