Can Reits do well as interest rates surge?

INFLATION is surging. The US inflation rate has hit 8.3 per cent, a 4-decade high, while in Singapore, core inflation for August has risen to 5.1 per cent, a near 4-year high.

The US Federal Reserve has gone on the warpath, hiking the federal funds rate by 0.75 percentage points last week, the third consecutive time it has done so. With the latest increase, the Fed policy rate now hovers in a range of 3 to 3.25 per cent. Investors, however, may need to brace for more pain ahead as rate increases may continue for the rest of this year and into 2023.

The prospect of higher rates has dampened demand for a whole range of yield products, and real estate investment trusts (Reits) have not been spared. Traditionally seen as reliable income instruments, Reits have lost favour due to the combination of high inflation and increased borrowing costs.