Philosophy

Why it’s time to take another look at beleaguered REITs. Also, an amazing alternative to the TINA philosophy and exposing the crypto lies.

Why it's time to take another look at beleaguered REITs.  Also, an amazing alternative to the TINA philosophy and exposing the crypto lies.

The S&P/TSX REIT index is down 18.1% year to date and that includes dividends. As I wrote in an April column, REIT dividend and distribution yields no longer look as attractive relative to rapidly rising risk-free government bond yields.

CIBC REIT analyst Dean Wilkinson provided a bullish counterpoint to the sector’s recent performance on Tuesday. Don’t ask for whom the debt circulates: Are rising interest rates a harbinger of doom?

For Mr. Wilkinson, the rising interest rate environment is simply business as usual for real estate: “REITs have been in the debt management business for a long time, and a changing interest rate environment (even quickly) is just part of the natural environment. ebb and flow of its business cycle.

CIBC estimates that even if funding costs double from here, the effects on the REIT’s overall profitability would be “immaterial.”

The issue of competitive risk-free returns remains, but REITs are now trading at attractive valuation levels that could fully compensate investors for the risk of inflation with potential price increases.

Mr. Wilkinson writes that REITs are currently trading at a discount of approximately 24 percent to net asset value compared to the usual 5 percent discount. In his words, the return to normality implies a “healthy double-digit rise” for the sector.

The analyst sees that REIT prices already reflect a future inflationary environment of rising bond yields. With these risks largely discounted, depressed valuations combine with reasonably attractive returns to make the beleaguered sector an attractive option for investors.

— Scott Barlow, Globe and Mail Market Strategist

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the summary

What comes next: stagflation or recession?

As anyone who has read a bear market headline will have already realized, the economic picture is turning ugly. The question that remains is what form of ugliness it will take. Ian McGugan surveys the investment landscape.

Goodbye Tin? The stock market faces competition from the humble GIC

The current bout of stock market volatility has many causes, including geopolitical uncertainty, runaway inflation, and recession fears. But the humble GIC can also take some credit here. Rising rates on CGIs may be challenging the bull market mantra: There is no alternative to stocks, David Berman writes.

Some see little sign of bottoming in US stocks, even after a strong sell-off

Despite a crushing sell-off that pushed US stocks into a bear market, investors see few signs to suggest equities have bottomed out as lingering concerns about rising inflation and an aggressive Federal Reserve continue to pressure prices. asset prices. Reuters’ Lewis Krauskopf takes a look.

How the crypto crash exposed industry lies and left retail investors in the lurch

The cryptocurrency sector is known for being volatile, so it would be foolish to write it all off. But the recent collapse, in charitable terms, broke many of the promises made to investors. More critically, it has exposed the lies of the industry, according to Tim Kiladze.

Nowhere to run, nowhere to hide as ‘stagflation’ bites

If inflation were the only challenge, investors’ options for hedging or diversifying their portfolios might be easier. But growth is fragile and the probability of a recession in the next 12 to 18 months is increasing by the day, says Jamie McGeever.

Others (for subscribers)

Wednesday Insider Report: CFO Is A Buyer Of This High Yield REIT Approaching Oversold Territory

Analyst ups and downs on Wednesday

Tuesday’s analyst ups and downs

Insider report Tuesday: C-suite execs are trading these five stocks

As the S&P 500 confirms a bear market, most of its components look worse

Others (for all)

With skyrocketing inflation and aggressive Fed, bond investors push for safety

ARK’s Cathie Wood stays focused on deflation as fund slump continues

balloon counselor

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Ask Globe Investor

Ask: What do you think about holding ETFs in registered accounts given what appears to be a higher volume of reinvested or “phantom” distributions recently? Last year I received phantom distributions on my registered and unregistered accounts, but while I get the benefit of increasing my adjusted cost basis on my non-registered account, I don’t get any benefit on my registered accounts.

Answer: Increasing the adjusted cost basis of an ETF in an unregistered account is only a “benefit” insofar as it prevents you from paying more capital gains tax than necessary when you eventually sell your units. However, there are no capital gains taxes on registered accounts, so increasing the ETF’s ACB would provide no benefit. For that reason, you should feel comfortable holding ETFs in a registered retirement savings plan or tax-free savings account, for example. In addition to receiving all investment income and capital gains tax-free, holding your ETFs in an RRSP or TFSA will simplify your accounting. (In the case of RRSPs, income tax only comes into play when the money is withdrawn.)

Also note that 2021 was an especially busy year for phantom distributions, as rising stock markets created many capital gains that ETFs distributed (on paper) to unitholders for tax purposes at the end of the year. However, given the markets rough start in 2022, I suspect we won’t see nearly the same volume of ghost distributions this year. To learn more about ghost distributions, read my recent column here.

–John Heinzl

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Compiled by Globe Investor staff