The United States Federal Reserve has raised interest rates by 25 basis points to a target range of 3.75% to 4.00%, its first hike since July 2023. It also signalled that another hike could come before the end of 20261. The decision comes against persistently elevated inflation, with higher energy prices adding to the pressure alongside resilient economic activity and investment.
I have covered the effects of higher interest rates before, here and here.
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In general, higher rates can put pressure on interest-rate-sensitive assets such as bonds and real estate investment trusts (REITs), while also affecting selected equities through higher financing costs and valuations. Cash and short-term government securities, on the other hand, can benefit from higher yields.
REITs Issues…Again
This has got to be one of my nth posts on REITs.
As a leveraged asset class, REITs tend to attract attention whenever interest rates rise. Higher borrowing costs can hurt, while higher bond yields can narrow the yield premium investors demand from REITs. It is therefore not surprising that Singapore-listed REITs have continued to struggle.
In chat groups and online discussions, I have come across investors who appear to have given up on them. Still, this is where one should step back.
View In Totality, Not Parts
It can be demoralising to see one's REIT holdings going down. If REITs are part of the intended portfolio allocation, however, falling prices may cause their weight to fall below target. From a portfolio perspective, this could present an opportunity to add than to abandon them, assuming the underlying REITs still meet the investment guidelines.
The idea is not to buy simply because prices have fallen; rather, it is to rebalance the portfolio towards its intended allocation, while considering the valuation and quality of the individual counters.
A falling asset class is not automatically a bargain. Nor is it automatically something to avoid. The more useful question is not about why REITs are falling, but rather what the portfolio looks like now.
This is why I keep coming back to the importance of viewing the portfolio in totality. Markets will continue to move, interest rates will rise and fall, and REITs will probably continue to give investors reasons to complain. That is nothing particularly new.
The portfolio, however, is supposed to provide the bigger picture.
Try out the Growth Indicator, Equities Indicator and S-REITs Indicator screening app for FREE. You can use it as a web page or save it as an app-like bookmark on your home screen of your computer, tablet or mobile for faster access.
1 – Cox, Jeff. Fed approves interest rate hike, signals one more to come this year. CNBC. 16 Sep 2026. https://www.cnbc.com/2026/09/16/fed-rate-decision-september-2026.html (accessed 18 Sep 2026)
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