Bill Gross is one of the biggest names around when it comes to bonds. So why are two of his biggest moves into AGNC Investment (NASDAQ:AGNC) and Annaly Capital Management (NYSE:NLY)? Those are only, at best, tangentially related to bonds. Nevertheless, these two REITs may have some significant winning potential ahead.
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Gross revealed that he expects both AGNC and Annaly to come out ahead if the spread between two key investments narrows. The two guideposts Gross is watching—and one, in particular, makes sense for him—are the 30-year mortgage rate and the 10-year Treasury note rate. Gross notes that continued rises in interest rates will likely cause the economy to slow down beyond the point of a recession. Gross further noted that the ability to “…equitize some of your housing” would be limited in turn.
Real estate investment trusts (REITs) like Annaly and AGNC have had mixed performance of late. While Annaly gained 1.6% in Tuesday’s trading, and AGNC added 1.47%, another fund didn’t fare so well. The VanEck Mortgage REIT Income ETF (MORT) slipped slightly in trading Tuesday.
Analyst consensus, meanwhile, is reasonably on AGNC and Annaly’s side. Both companies currently have a Moderate Buy consensus rating but also have downside risks. AGNC has a 12.10% downside risk thanks to its average share price target of $9.08. Meanwhile, Annaly has a 9.66% downside risk with its average share price target of $19.63.
