Why Invesco Mortgage Capital shares fell 11.8% in July

What happened

Invesco Mortgage Capital (NYSE: RVI) had a tough month in July, with its stock price falling 11.8% over the period, according to S&P Global Market Intelligence.

It lags behind the main US stock market benchmark, the S&P500, which rose 2.3% last month, as well as the S&P 600 Small Cap Index, which fell 2.4% in July.

Invesco Mortgage Capital’s share price is down about 5% year-to-date to Aug. 5, trading at just over $3 per share.

Image source: Getty Images.

So what

Invesco Mortgage Capital is a Mortgage Real Estate Investment Trust (REIT), meaning it invests in mortgages, mortgage-backed securities and other similar assets, and earns money from the income of Invesco Mortgage Capital. ‘interests. The company primarily focuses on federally guaranteed mortgage-backed securities.

The stock price fell about 5% on Thursday after a lackluster second-quarter earnings report was released. Analysts had expected Invesco Mortgage to post a profit boost, but the August 4 release showed a net loss of $88 million, or $0.34 per share, compared to a net loss of $20 million. dollars in the second quarter of 2020. Additionally, the pound’s value fell 12% to $3.21 year-over-year.

“Agency RMBS underperformed sharply in the second quarter as continued strong demand from the Federal Reserve was more than offset by high net supply, reduced demand from commercial banks, heightened redemption concerns anticipated and an anticipation that the Federal Reserve’s timetable for reducing purchases may be accelerated,” CEO John Anzalone explained.

Now what

Invesco Mortgage Capital was hammered in 2020 due to the effects of the pandemic, particularly on its commercial mortgage-backed securities portfolio, as that market slumped. As a result, its share price fell 73%.

The company has since sold its commercial portfolio of MBS and is focusing on government investments in MBS, which make up approximately 99% of the portfolio.

While this shift to agency mortgages did not help the asset’s particularly difficult last quarter, it should make Invesco Mortgage Capital a more conservative stock over the long term – less prone to wild swings than it experienced last year, with more stable yields.

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