Mortgage REIT story updated from 9:35 a.m. to include Thursday's price action in final paragraph.NEW YORK ( TheStreet) -- Rising interest rates have sparked a selloff in mortgage REITs, but reports from Keefe Bruyette & Woods and RBC Capital Markets urge investors to use the opportunity to add exposure to the sector.
Stocks with less downside potential if the Fed cuts back its stimulus more quickly than expected, according to KBW, are Capstead Mortgage Corp. (CMO - Get Report), Hatteras Financial (HTS), MFA Financial (MFA - Get Report), Anworth Mortgage Asset (ANH - Get Report), and Dynex Capital (DNX). However, investors who expect Fed stimulus to continue longer should focus on stocks that have been hardest hit by the recent bond market selloff. Those include American Capital Agency (AGNC - Get Report), American Capital Mortgage Investment (MTGE), and Western Asset Mortgage Capital Corp. (WMC). RBC recommends Annaly Capital (NLY - Get Report) as well as MFA and Hatteras. They also recommend American Capital Agency, though they warn that "higher leverage in its business magnifies returns and losses as well." The bullish reports, as well as a stabilization in Treasury yields appeared to have a positive affect on the mortgage REIT sector Thursday as several names were positive going into the final hour of trading. AGNC was up 1.46% to $26.79, Capstead was higher by 2.53% to $12.55, MFA was up 0.96% to $8.89 and Anworth was up 2.15% to $5.71. Annaly, however, was down 0.75% to $13.88. -- Written by Dan Freed in New York. Follow @dan_freed