Why you should look at REITs for yield
While this is a familiar call - look to REITs for yield - the more interesting takeaway from this recent interview with Goldman Sachs Asset Management’s Sheila Patel is the fact that they seem to be firmly in the "lower for longer" interest rate camp - a view that we have shared for quite some time.
From the article:
With interest rates set to remain lower for longer, real-estate investment trusts (REITs) have become prey in the global hunt for yield, said Sheila Patel, CEO of International Goldman Sachs Asset Management.
"The number one thing that has been concerning clients all year, underlying everything, has been the low yield environment," she told CNBC's "Squawk Box." "People have looked look to REITs as a source of yield when the bond market hasn't been able to provide it."
REITs are investment trusts which own properties, such as apartment buildings, shopping malls, student housing or warehouse space, and then pay out most of the rental income as dividends for investors.
The bond market certainly hasn't been cooperative with investors seeking income.
But while Patel may be looking outside of the bond market for yield, that didn't mean she expected a collapse in bond prices. The segment had risen sharply in price as several central banks globally pursued negative interest rate policies, spurring calls that bonds were in bubble territory. Bond prices move inversely to yield.
"Everybody looks for the source of what might pop a bubble if you believe there is one," Patel said. "At the end of the day, you have to look at the demand side as well and demographics and so with pensions and the need for fixed income investing, it's hard to see where people go outside of bonds."