Michael Missaghie American Capital Agency AGNC-Q COMMENT Nov 20, 2013

Does not see it getting back to last year’s prices. Very high yield. There is a little bit of a rally and he would be selling into this rally as when interest rates rise, this one will fall quickly.

Has been somewhat cautious on this in the last 3 years. They borrow shorter-term debt and lend money on the long end of the curve. They make money on the spread in between, except that they lever up their borrowing versus their lending at a ratio of about 6 to 1. This means they are very sensitive to changes in the yield curve. It is his expectation that over time, the yield curve will flatten. Doesn’t think you will see an erosion in NAV at this time. Usually want to buy these when they are trading at about $.85 on the dollar, which is where they are right now. Very risky.

There is a lot of volatility in the sector. He doesn’t own any of the mortgage REITs, although he does think they are starting to represent pretty decent values here. Simple explanation. They borrow on the short end of the curve, lever it up 6 or 7 times and invest it in the long end of the curve in the form of mortgages. You have seen interest rates go down which have increased their reinvestment risk, so the returns they were getting 3 or 4 years ago, they were no longer getting, which resulted in dividend cuts. Results have stabilized somewhat. The rule of thumb is that you want to buy these when they are trading at about $.75-$.85 on the dollar in terms of book value. If you own, it is a pretty decent place to get high yield, just recognize that there is going to be a lot of volatility embedded within these.

Represents good value. We are in a lower interest rate environment than we were 5 years ago. Buy these at $0.75 to $0.85 on the dollar which is where they are now. Over time you should do okay.

This company basically borrows Short and lends out mortgages. They leverage that up and pay out their returns. He used to own this, but one of the issues he had was if interest rates started to rise, it would really hurt this stock. Highly levered which is another issue you have to look at. Gives you a very good rate of return when things are going well. Dividend rate of 12%.

Weak right now. Big interest rate risk here.

It has a 12.3% dividend. Sustainability is suspect. You are out of cycle. You are waiting a long time for a dividend that is looking a little tight. You are looking at a big wall of sellers. There are better places to put your money. The interest rate cycle is not working for you here.

The best performing REITs in Canada this year had US properties. He prefers not to go to US REITs because of currency risk. His best idea this year is MRC-T at a 65% discount.

A mortgage REIT. They have a big, big secular headwind because of rising interest rates. Also, the charts are not favourable and there is a lot of upside resistance if they try to turn. He does not like bottom fishing. Dividend yield of 13.3%.