Why Invesco Mortgage Capital stock fell 11.8% in July

What happened

Mortgage capital Invesco (NYSE: IVR) had a rough month in July, with its share price falling 11.8% during that time, according to S&P Global Market Intelligence.

It tracked the main benchmark of the US stock market, the S&P 500, which was up 2.3% last month, as well as the S&P 600 Small Cap Index, which was down 2.4% in July.

Invesco Mortgage Capital’s share price has fallen about 5% year-to-date through August 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), which means that it invests in mortgages, mortgage-backed securities and other similar assets, and earns money from income from interests. The company focuses primarily on federally guaranteed mortgage backed securities.

The stock price fell about 5% on Thursday after the release of a less than stellar second quarter earnings report. Analysts expected Invesco Mortgage to post an increase in profits, but the August 4 release showed a net loss of $ 88 million, or $ 0.34 per share, down from a net loss of $ 20 million in the second quarter of 2020. Additionally, the pound value fell 12% to $ 3.21 year-over-year.

“The agency RMBS significantly underperformed 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, increased prepayment concerns and an anticipation that the Federal Reserve’s timetable for reducing purchases could be accelerated. “, explained CEO John Anzalone.

Now what

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

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

While this shift to agency mortgages didn’t help the last quarter, which was particularly tough on assets, it should make Invesco Mortgage Capital a more conservative stock in the long run – less prone to sharp swings than she experienced last year with more stable returns.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Sallie R. Loera