Bong manager Jeff Gundlach thinks investors should avoid REITs that buy mortgage backed securities due to the risk of continued dividend cuts, Bloomberg reports.
Gundlach, whose most recent and negative monthly presentation is here, said in an email that he “[expects] further dividend cuts in the quarters ahead and would avoid MBS REITS for the time being.” Seeing dividend cuts ahead, Gundlach sold his REIT holdings months ago.
REITs Annaly Capital Management, Hatteras Financial and Capstead Mortgage each recently announced dividend cuts.
The key issue, according to Gundlach, is that prepayments on government-back MBS are rising, lowering yields and reducing the cash available for REITs to return to investors. Adding to squeeze are record low interest rates on 30-year mortgages that are leading to homeowner refinancings.
Gundlach’s $14.9 billion DoubleLine Total Return Bond Fund, has returned 9.4 percent in 2011 and outpaced 99 percent of its rivals, primarily by investing in mortgage debt.
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