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American Capital Mortgage: Is This 14% Yielding Mortgage REIT A Buy?

Low interest rates over a long period of time and stress in the mortgage sector have led to an unprecedented rise of mortgage REITs, which have been trying to take advantage of low funding costs and extraordinary return opportunities in the beaten-down mortgage business. Annaly Capital (NLY) and American Capital Agency (AGNC) pretty much rule the business and are the most visible agency mortgage REITs in the sector.

Nonetheless, mortgage REITs with smaller investment portfolios and capitalizations might be interesting alternatives to Annaly Capital and AGNC. American Capital Mortgage (MTGE) is such a mortgage REIT.

American Capital Mortgage invests in anything ranging from collateralized mortgage obligations, agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities, prime loans etc. American Capital Mortgage's investment portfolio was valued at $5.9 billion at the end of the fourth quarter, and the company retains a significant position of agency MBS, worth $4.7 billion.

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