What Happened

AGNC Investment Corp. (AGNC 0.16%) had a solid month in May as its share price climbed 11.4%, according to S&P Global Market Intelligence.

The real estate investment trust (REIT) outperformed both the S&P 500, which was essentially flat in May, up 0.2%, and the Nasdaq Composite, which was down 1.9% in May. AGNC remains down 19% year to date, trading at about $12 per share.

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So what

AGNC Investment is a mortgage REIT with almost its entire portfolio invested in government agency mortgage-backed securities (MBS), like those offered by Fannie Mae and Freddie Mac. As they are guaranteed by the U.S. government, the risk is typically lower than other mortgages.

The first quarter was a difficult one for AGNC Investment as it posted a net loss of $651 million and saw its book value drop to $13.12 per share from $15.75 the previous quarter and $17.72 after Q1 2021. It was due to the worst quarter in 40 years for fixed income markets as interest rates rose, the yield curve flattened, and spreads widened, causing MBS to underperform.

AGNC President and CEO Peter Federico said in the earnings release:

These conditions led to a risk-off sentiment that pressured equity markets and caused unprecedented price declines across fixed income markets as evidenced by the Bloomberg Aggregate Bond Index, the broadest fixed income market measure, posting its worst quarterly performance in more than 40 years.

Yet, amid the gloom of the Q1 report, the stock price rose upon its release on May 2. Why? 

Now what

The stock price jumped on the Q1 release based more on the outlook than recent past performance. As Federico explained, AGNC’s outlook for existing and new agency MBS has improved as AGNC repositioned the portfolio to take advantage of rising rates and higher yields to generate better returns and interest income:

Following the very significant repricing of Agency MBS over the last two quarters, we now believe that levered returns on many segments of the Agency MBS market are attractive on both an absolute and relative basis and adequately compensate investors for the risks associated with the current environment.

The improved outlook and attractive $0.12 monthly dividend, with an 11.8% yield, makes AGNC a decent option, primarily for income investors.