Byron Boston, president, CEO and co-chief investment officer of Dynex Capital, Inc. (NYSE: DX), joined REIT.com for a CEO Spotlight video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.
Boston was asked to explain the investment philosophy behind the mortgage REIT.
“Our overall philosophy is one of executing a simple strategy with a keen eye on managing our overall risk exposure,” he explained.
Boston described the portfolio, which holds both commercial and residential assets, as conservative, short-duration and diversified. More than 90 percent of the portfolio is rated AAA or higher, he noted, while approximately 100 percent of the portfolio matures or resets within 10 years. A large concentration of the portfolio’s residential assets mature within five years, while the longer-duration assets are in the commercial sector.
“The portfolio is structured to perform in a variety of market environments,” said Boston, noting that 60 percent of investment capital is allocated to the commercial sector and 40 percent to the residential sector.
Boston was asked where he currently sees the best opportunities. He observed that since last summer, about 95 percent of the company’s marginalized investments have gone to the commercial sector.
“The value we see in the commercial sector at this point is well-defined cash flows,” he said. If interest rates rise, the environment will be supportive of the commercial sector as it will reflect a stronger economy and better credit environment, he said.
Boston also commented on the macroeconomic factors, in addition to interest rates, that he is watching.
“One of the largest macro factors today happens to be central bank involvement in free-flowing capital markets,” he said.
Additionally, Boston pointed out that Dynex Capital’s borrowing costs have remained low and stable since 2008.
“We expect those financing costs to continue to be relatively low and stable for some time in the future, so we monitor central bank activity very closely,” he said. “Since 2008, we’ve had the opinion that rates would be lower for longer than what most people expect. We continue to believe that.”