AGNC Investment Corp. (AGNC) BofA Securities 2024 Financial Services Conference - Transcript

Summary of AGNC Investment Corp. Conference Call Company Overview - Company: AGNC Investment Corp. (NASDAQ: AGNC) - Industry: Mortgage Real Estate Investment Trusts (REITs) - Anniversary: Celebrated 15 years as a public entity in May 2023, with a total stock return of approximately 350% since its IPO in 2008, averaging a 10% annual return, comparable to the S&P 500 [2][3] Investment Strategy and Market Environment - Investment Focus: Primarily invests in agency mortgage-backed securities (MBS), which are backed by the U.S. government [2][11] - Market Size: The agency MBS market is valued at approximately $8.5 trillion, but access is limited for retail investors [7] - **Current Environment**: The last two years have been challenging due to aggressive monetary policy tightening by the Federal Reserve, raising short-term rates by 525 basis points and reducing its balance sheet by$1.3 trillion [4][5] - Future Outlook: The company anticipates a favorable investment environment with potential mid-teens returns on leveraged investments in MBS due to current wide spreads [9][19] Mortgage Spreads and Risk Management - Spread Dynamics: Mortgage spreads have widened significantly, reaching nearly 200 basis points, which presents attractive investment opportunities [9][16] - Hedging Strategy: The company maintains a hedge ratio of over 100%, effectively converting short-term debt to longer-term debt to mitigate interest rate risk [22][50] - Interest Rate Volatility: Stability in interest rates is crucial for maximizing returns; the company expects reduced volatility as the Fed transitions from tightening to a pause [19][52] Dividend Policy and Earnings - Dividend Status: The company has maintained its dividend at the current level for three years, significantly over-earning it, with a net interest margin of 308 basis points [31][32] - Earnings Projection: The projected return on the portfolio is mid-teens, which aligns with the cost of capital, indicating a sustainable dividend policy [33][34] Capital Management and Funding - Leverage: Currently operating at a leverage ratio of 7x, with over $5 billion in unencumbered assets, providing capacity to withstand market volatility [25][24] - Capital Raising Strategy: The company prefers raising capital through its at-the-money (ATM) program, which is cost-effective and beneficial for existing shareholders [39][40] Competitive Advantages - Internal Broker-Dealer: AGNC operates its own broker-dealer, Bethesda Securities, which enhances funding efficiency and reduces costs [44][48] - Market Position: The company believes agency MBS are currently the cheapest fixed-income asset class, offering better yields compared to investment-grade debt [11][12] Conclusion - Market Sentiment: The company is optimistic about the future, with expectations of improved earnings and potential for trading at a premium to book value as market conditions stabilize [55][57]