Redwood Trust (RWT, Financial) invests in mortgage-related and other real estate-related assets and is engaged in residential and commercial mortgage banking activities. A volatile interest rate environment and increased competition in each of Redwood Trust’s business segments (residential and commercial mortgage banking) has resulted in lower than expected volumes and profitability through the first three quarters of 2015. Despite difficult market conditions, the company has remained profitable in each of its business segments. Additionally, Redwood continues to enhance its competitive advantage across its platforms and remains well positioned to take advantage of potential government-sponsored enterprise reform, the eventual revitalization of private-label residential securitization and new commercial investment opportunities. In hindsight, the market may have been assigning an overly aggressive timeline to Redwood’s earnings progression. We believe, however, that the market valuation of less than book value now overly discounts Redwood’s future earnings capabilities. While we wait for that value to be realized, a dividend yield of nearly 8% should enhance future total return.
From Wallace Weitz (Trades, Portfolio)'s Balanced Fund commentary for third quarter 2015.
