Hedging Interest Rate Increase with REITs

With the Fed indication of three interest rate hikes for 2017, the bond market and bond surrogate stocks (utilities, telecom, REIT) initially took a big hit.    However, as time passed, each of these asset classes began to recover.    Interest rates on bonds have declined from the peak and interest sensitive stocks have risen from their short term bottoms.

I'm thinking the market no longer believes the hawkish talk will become reality.   Perhaps, it is the Fed just jawboning to keep the market animal spirits from becoming too exuberant and creating a bubble.

In the past (e.g. 2014), it has been profitable to bet against aggressive interest rate hikes.  Perhaps it may be beneficial to do so again.   Last time, it paid off when I purchased some long (5-10 year CDs).  This time, I am considering buying REIT stocks, because I think REITs will benefit whatever interest rate do, whether they go up, stay flat, or go down.

If the Fed stays with the three interest rate hikes, the economy is much stronger - a win real estate and REITs.  If the Fed made an interest rate head fake - higher interest/dividend paying assets such as REITs will rise.

For more on Reflections and Musings, check back Saturdays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC