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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