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CYS Investments Needs To Change Portfolio Strategy As Fed Will Not Increase Rates

In 2015, return deviation among Mortgage REITs (MREITs) will increase due to divergence in portfolio composition strategies. In the present low interest rate environment, CYS Investments (NYSE:CYS) has positioned its portfolio conservatively. The company needs to rebuild its investment portfolio at a low basis to increase its asset yield and earnings. Also, the company needs to make its portfolio composition aggressive by increasing its exposure to high-yield and long-duration assets, and reduce its hedge book, which will augur well for its core EPS. The stock is trading at a discount to its book value, which is justified given the conservative portfolio composition strategy. If the company opts for an aggressive portfolio composition strategy in upcoming quarters, its stock valuation will be positively…