iEdge S-Reit Index Weekly Review 24 Sep 24
Hello dear readers!
It has been a few months since I wrote and I sure missed you folks. Uncle is still around just a little behind the scenes. Our last update was during a challenging month for SREITs and sentiment was bad. Particularly the aggressive US Federal Reserve interest rate cut many hoped for in the beginning of 2024 did not happen.
Looking at the chart above we see the inverse correlation between the iEdge S-Reit Index (in blue) and the US 10-Year Treasury Bond Yield (in orange) continue. I am also pleased that the red support and resistance lines remain influential as the index often react at those levels.
We also see that the STI index is doing much better as it represents various sectors including those that are less prone to inflation and hence less vulnerable to the corresponding shift in sentiments.
The US 10-Year Treasury Bond Yield has dropped a fair amount since the peak around April / May 2024. While not initially, we see that the iEdge S-Reit Index has since caught up. In fact it is now near levels last since at the beginning of 2024 when sentiment was good due to the hype of interest rate cut, except this time, the interest rate cut has indeed happened.
The US Federal Reserve decided this month to cut interest rate by 0.5%, surprising many who were expecting 0.25%. This sparked some concern about whether it is too late to achieve a soft landing for the US economy and I suspect this theme is something that may pop up from time to time in the weeks and months ahead.
For those of you who are not familiar, a cut in the interest rate results in lower borrowing cost. This is supportive towards REITs as they will benefit from lower costs and cheaper loans for acquisitions. Therefore we see the SREITS rallying lately in anticipation.
Notice I used the word anticipation? This is because the effects of the interest rate cut will take time to trickle down. Hence we may still see SREITs encountering challenges, especially if their financial planning are not of the best positions. While the situation is generally better compared to our last review, be prepared for the occasional volatility, such as the current pullback in the iEdge S-Reit Index and the rise in the US 10-Year Treasury Bond Yield, as the business climate continues to stabilize.
In the meantime we must remind ourselves not to be enticed by high yields as often it comes with excessive risk. For example, a REIT that suffered a big drop in price will see its dividend yield jump up as it is a lagging indicator. I personally go for SREITs with prudent capital management and active renewal activities.
As mentioned last time, I now prefer to buy through an ETF instead, which is the CSOP iEdge SREIT ETF. This strategy allows me to maintain exposure and diversification within the SREITs sector, while also reducing my overall investment cost through dollar-cost averaging.
I recently received around $1600 of dividends from Keppel Infrastructure Trust and Keppel DC REIT. Yay! More free coffee for Uncle.
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