What’s Good for Chrysler is Good for Fiat

Fiat watercraft in Miami

It’s no secret that Fiat owns a big chunk of Chrysler. Yes, for those of you hiding in your closets during every episode of Budget Talks, Obamacare, and Debt Ceiling, wondering if the end of the world is near, the Italians own one of Detroit’s finest. The big debate over the last few years is between Fiat and the United Auto Workers Trust that still owns 41.5% of Chrysler. The UAW Trust wants to maximize the amount they get paid for selling it’s share to Fiat. This way, they can pay benefits to retired Chrysler employees. Fiat, on the other hand, wants to pay as little as possible, with the idea to own all of Chrysler, so they can take advantage of economies of scale to reduce costs and increase shareholder value. You can see the dilemma.

REITs for Rising Rate Regime

Back in May and June, if you were invested in REITs, you saw the value of those positions take a huge hit as did most fixed income investments. But REITs aren’t fixed income, you say, so why were they so negatively impacted?

Well, bottom line is that REITs are perceived to be ‘high yield’ plays, or more broadly, that investors invest in REITs for the income they provide. After all, they have to pay out 90% of their income to unit holders. Therefore, when interest rates rise, there is the perception that REITs will be negatively impacted similar to how fixed income reacts to interest rate increases.

This is a myth, however, or at least, not entirely true across all types of REITs. In fact, there are some REITs that may actually benefit from interest rate increases, which usually occur when inflation is rising. While we are not currently in an inflationary environment, investors should keep in mind that it is unexpected inflation we should worry about. To read more about which REITs are better positioned for interest rate increases and inflationary environments, read more.

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