REITs provide diversification benefits as the asset shows a lower correlation to stocks and bonds. However, the asset category has recently experienced heightened volatility due to interest rate risks. Some investors fear REITs will act negatively in rising interest rate environment. The high dividends in REITs are attractive in a low-rate environment but are less enticing once safer Treasuries show higher rates.
“There will be, of course, other assets that won’t necessarily move in lockstep with the overall market during a correction. But by and large, gold and real estate have historically been the most consistent hedges against volatility. Remember this the next time the market sells off,” said Direxion.
For more information on real estate investment trusts, visit our REITs category.