Is It A Good Time To Buy REITs Now?

Yes, interest rates are (very likely) going to be lowered, judging from the message given by the United States Federal Reserve last week. Soon, financial news and blogosphere were filled with questions like the blog title above, or something similar. It is natural for investors to ask such a question as REITs, or real estate investment trusts, are a leveraged asset class, and a fall in interest rates meant that cost of loans would go down, which subsequently increases distributions.

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To answer the question, I would dish out the same old answer which I love to dispense; it depends. Ideally, a good time to buy REITs would be when they were at their lowest and/or weakest. Using the iEdge S-REIT Leaders Index, during the past five years, the two weak points were sometime in March 2020 (COVID-19) and October 2023 (accelerated interest rate growth). Granted that these were hindsight views and true bottoms are very hard to catch, but with sound fundamental analysis implemented (REIT financials, environmental factors and economic conditions), plus a bit of price action model at play, chances are higher of getting at least around the deemed bottom of the moment.

If you did not catch the bottom, rest assured; if you had vested earlier in the REITs in your portfolio, now is a good time to average up, provided that the current prices ticked off your valuation checklist, and there is a great potential that your selected REIT prices will rise. If you had not, however, and/or not that good in analysing REITs, then perhaps you can start off with REIT ETFs (exchange traded funds), which currently there are five listed in the local Singapore Exchange. As the REIT ETFs are, to a certain extent, seen as representatives of the asset class, making periodic entries into them (monthly, quarterly, half-yearly or yearly) would at least give you exposure, thus for this method, “any time to buy REITs is a good time”.

Ethical Investing? It Depends On Whose

In recent years there was a spike in interest on ethical investing, which comes in different names and sub-forms such as sustainable investing, ESG (environmental, social and governance) investing, green investing, etc. Many institutions offered mutual funds and exchange traded funds (ETFs) focused on such investment principles, examples of which would be the iShares Global Clean Energy ETF (ticker: ICLN) and the Lion-OCBC Securities Singapore Low Carbon ETF (ticker: ESG.SI) in our Bedokian Portfolio.

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Although there are set standards on what ethical investing is, based on quantifiable numbers such as ESG scores, or industries directly or indirectly related to the cause (like our ICLN for green energy and ESG.SI for low carbon), ethics overall is still very much open to interpretation and subjectivity. While there are general beliefs in what “ethical” means, like not investing into tobacco stocks as an illustration, it would be surprising to find out otherwise if one digs deep enough. An ex-colleague of mine refused to invest in real estate investment trusts (REITs), on the rationale that “bad landlords” increasing rents would contribute eventually to increasing prices and costs of living (it is his viewpoint, so please do not complain on me for this). Another anecdotal story (a friend of a friend) refrained from buying large cap stocks due to the “bad corporations” image (do not flame me for this, too).

As what some said, the best investments are the ones that could make you sleep well at night. Not only this adage applies to the financially healthy companies, but also those whose businesses benefit many, i.e., making money in a “cleaner” sense (quotes emphasized by me as this is subjective).

In the Bedokian’s opinion, if the investible assets and financial instruments are open and legal, it is up to the individual investor’s views and values on determining what ethical means to them.

 

Disclaimer

Cash Is King…For Now

The past few days had seen the markets taking a deep dive far more spectacular than those in the Olympics. Whatever the reasons presented; the United States jobs report, the unwinding of the Yen carry trade, the potential of a further blowout in the Middle East crisis, etc., panic is seen among investors and traders. The VIX index, colloquially known as the market fear index, spiked more than 200% over the past few days.

As mentioned before, short of a nuclear winter, an alien invasion or a Chicxulub-level asteroid hitting Earth, life still goes on, and the markets will eventually recover and back on track for their upward trajectory. The main concerns right now should be thinking of what discounted asset classes/counters to buy, and finding the cash to get them, instead of lamenting on the unrealized capital losses one is holding onto.

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Having an ample amount of cash is important in such market sell-off conditions, for it is the best financial instrument to acquire other asset classes without compromising its present value. While in times of boom, having too much cash would result in what is called a cash drag, i.e., the opportunity cost of keeping cash rather than being deployed in assets yielding higher returns. In times of bust, however, it is illogical to sell off a depressed counter to buy another depressed counter, so cash comes in useful here.

For The Bedokian Portfolio, the 5% to 10% cash component is there for this moment, for it acts like a war chest of sorts to take advantage of in down markets. This cash portion is not to be mixed with your daily uses, emergency fund and savings for your discretionary needs, and once inside, it should stay in the portfolio until it is planned for drawdown. It is fed by dividends from equities, distributions from real estate investment trusts, coupon payments from bonds and interest payments from bank accounts or treasury bills, and lastly your own cash injections.

Whatever the markets throw at you, find that sliver of opportunity and capitalize on it. Keep calm and stay invested.