Not All REITs Are A Good Buy Even When They Go On Sale

Imagine you’re at the mall and you come across two items that you’d love to take home with you. You only have $60 left to spend so you’re probably only going to be able to buy one of them. The first one has a regular price of $100 but is on sale today for 50% off!! The second item, unfortunately, is $60 and there is no sign on the rack that it too is on sale. Hopeful that someone has forgotten to display the 50% off sign, you walk up to the counter and ask the sales clerk. With a big bright smile, she says, “Isn’t that so cute?”, right before tells you that it’s no mistake it doesn’t have a sale sign on it. It’s selling for $60.

The first item is 50% off which sounds like a great deal while the second item is fully priced and is popular enough not to be available long enough to go on sale. Which one is the better buy? Most shoppers I know would buy the item that is 50% off because, hey, they got a great deal.

But let’s suppose its early June and the first item is a lamb’s wool cable knit sweater. You don’t have any plans to travel to the Southern Hemisphere, where it will soon be winter, so if you buy the sweater, there’s a good chance it will sit in your closet until late October or early November, if you’re lucky. It doesn’t get cold in Palm Beach Florida until even later in the year.

The second item is a cute two piece bathing suit that, after you try it on, makes you magically look like you’re 10 pounds lighter. It’s summer and you already know you’re going to be spending lots of time on the beach.

Which item is the better buy now?

Not All REITs are Good Buys

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Consumer Confidence Rises But Doubts Remain

The good news is that the Conference Board’s confidence gauge rose to 101.5, well above the July reading of 91 and beating the consensus analyst estimates of 93.4. There are two factors that make me cautiously enthusiastic about the latest reading, however. On the one hand, the survey for this month’s reading was completed on August 13th, well before the recent turmoil in the equity markets. I venture to guess after fielding many calls from clients over the last few days and answering the question:

Surprise Housing Starts Data: Time to Reevaluate Your REIT Portfolio

Another data point on housing was released today, and this time there was good news. U.S. Housing starts for July came in at 1.2 million, above what economists had predicted and near an eight-year high. It seems that at times, housing will be the catalyst that drives the economy forward or at the very least help it gain some traction.

But even though today’s data was surprisingly positive, there have recently been other housing metrics that led to a less sanguine view on the sector. U.S. Real Home Prices are rising at a rapid rate, which is a positive indication the economy is moving in the right direction, but can also make homebuying less affordable. And even though banks are easing lending standards, mortgage applications for home purchases remain flat. Finally, wage growth seems to be stagnant or growing very slowly, which raises caution in consumers to make a long-term commitment in the form of a 30-year mortgage.

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System Dynamics and the Effect of Emerging Markets

For years I have been working with international clients so I’ve had exposure to emerging markets both on the equity side and the fixed income side. It was always amazing to me when comparing the portfolios of our US clients with those that were based offshore and how much less exposure the US client had to emerging markets. It wasn’t for lack of trying on our part. If emerging market equities make up 14% of the world equity market capitalization, for example, then 14% allocation should be your base allocation.

This Bull Still Has 3 More Innings to Play

The S&P 500 has been on one of the longest bull runs in a long time. The last bull market lasted about 5 years and we are well past that now. The current bull market started in March 2009 and investors are starting to get a bit nervous that it will soon come to an end.

While I do think we may have a strong correction in the near future, I don’t think we are at the end of this bull. To use baseball parlance (my apologies to subscribers that aren’t sports fans), I think we are in the 6th inning. The pullback will be the 7th inning stretch that comes right before the home stretch.

This REITs Dividend Grows on Trees

During a month when REITs outperformed the S&P 500 and generally had a solid return, two property sectors were noticeably absent at the party. In a way, it reminds me of my high school days when to my dismay, I would find out Monday morning that all the cool kids were at a party together over the weekend and I wasn’t invited. In the REIT world, the uninvited were Lodging REITs, which have continued their downtrend YTD with another 0.7% decline for the month and is now -10.8% for 2015. Meanwhile, Timber REITs have also struggled so far in 2015 and July was no exception, as they declined another 1.8% for the month.

Despite the decline, however, this REIT has increased its dividend by 94% in just a few short years.

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