The Federal Reserve is widely anticipated to raise its benchmark rates on Wednesday, but some believe the U.S. will still be stuck in relatively low-rate environment for an extended period.
Consequently, income-minded investors may still find attractive opportunities to generate extra yields in investments like real estate investment trusts and related exchange traded funds.
“Given that yields remain below historical averages and will continue to be so for the foreseeable future, investors will need to continue to look outside traditional fixed income benchmarks and take a dynamic approach to insulate against the impact of rising rates,” Martin Kremenstein, Head of NuShares, said in a note.
Fixed-income investors are closely watching the Fed ahead of the upcoming March meeting, with fed funds futures traders betting on a 94% chance of a 25 basis point rate hike to 1.75%. While many anticipate the Fed to continue to raise rates, the central bank will likely take it slow and steady, which may leave us with a prolonged yield environment for income-minded investors.
Consequently, Kremenstein argued that investors should look outside the benchmark towards dividend paying equities and REITs that may offer the opportunity to increase income, but investors should keep in mind that these riskier income plays may be accompanied by higher risk.