Why Annaly Capital Management Stock Rallied 13% in July
Shares of mortgage real estate investment trust (REIT) Annaly Capital Management (NYSE: NLY) rose 13% in July according to data from S&P Global Market Intelligence. Although that's nice to see, the stock was still down roughly 20% through the first seven months of the year. And, at its worst, was off around 55% during the early 2020 bear market.
The key here is that mortgage REITs like Annaly are not your typical real estate investment trusts. They do not own physical assets, instead holding a portfolio of mortgages. Equally important, leverage is employed to boost investor returns. The collateral for that debt, meanwhile, is the REIT's portfolio of loans. That's a dicey situation since the value of the loans can fall swiftly during sharp market dislocations, leading to calls from lenders for additional capital. If a mortgage REIT can't come up with the cash to satisfy its lenders it will be forced to sell mortgage assets -- right when their prices are low. When the market fell earlier in the year investors were afraid that Annaly and other mortgage REITs would end up sliding into a downward spiral.
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Source Fool.com
