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Why AGNC Investment Ended Up Losing All Its Gains in 2021

By Rich Duprey – Jan 6, 2022 at 9:55AM

Key Points

  • AGNC Investment was one of the better-performing REITs in the middle of last year.
  • Wall Street was caught off guard by the sudden deflation in its estimated book value.
  • AGNC remains hopeful it is in position to weather this volatile environment.

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The mortgage REIT was flogging the S&P 500's gains by nearly two to one at one point.

What happened 

It looked as though 2021 were shaping up to be a banner year for AGNC Investment (AGNC 0.10%), the mortgage real estate investment trust (REIT) that buys and sells packaged government-backed mortgages from Fannie Mae, Freddie Mac, and Ginnie Mae -- so-called agency mortgages (hence the REIT's name).

By June 1, AGNC's stock was flying high with a near-20% gain versus one of just 11% by the S&P 500, which went on to end the year with a muscular 27% increase, or more than twice its historical average. 

The mREIT, on the other hand, saw all its gains wiped out and ended up losing 3.6% in 2021, according to data provided by S&P Global Market Intelligence

Man signing form with model house and coins in front of him

Image source: Getty Images.

So what

How was it that AGNC Investment went from hero to zero in just seven months? It all began with its June monthly dividend announcement, which showed a serious deterioration in its estimated tangible net book value as it fell to $16.82 per share at the end of May, compared to the $17.96 per share value it had recorded at the end of April.

There were significant disruptions in the financial markets in the first quarter of 2021 as the economy tried to reopen, but supply chain snags created bottlenecks that had wide-ranging effects across the market, though AGNC was one of the few that quickly recovered the book value it lost during the period.

That's why the markets were surprised by AGNC's sudden compression in estimated tangible net book value. It was trading at a premium to its peers, but now its book value had just been significantly discounted. Nor has it improved, as its last report for the November period showed book value further deteriorating, to $15.80 per share. 

Smiling family in front of for sale sign

Image source: Getty Images.

Now what

AGNC Investment is still a premiere REIT, and its monthly dividend is well covered and not in any danger of being cut. At around $15 per share, though, the market seem to be saying the mREIT is fairly valued, considering the volatility that's expected to come this year.

Rising inflation, the Federal Reserve's tapering, and banks potentially buying more loans with all the excess liquidity they have available will create continued pressure for the REIT market and mortgage-backed security pricing. 

Although AGNC president and CEO Peter Federico said the REIT is well prepared and positioned to take advantage of this environment, "uncertainty remains," and AGNC will "operate with a more conservative risk profile" until conditions improve.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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