Question

An investor has a $1,000,000 portfolio that is split evenly between "blue chip" stocks and treasury securities. The current economic environment is characterized by low interest rates and flat stock prices - and this is expected to remain unchanged for a number of years. However, the residential and commercial real estate market is expected to be strong

Answer 1

Answer:

Equity REITs

Explanation:

In an event of financial assets like when the stocks and bonds are not doing well, "hard" assets such as real estate and artwork tend to do better (since investors reallocate their investments away from financial assets into housing, etc.) A way that investors can participate in this is by investing in equity REITs. Since equity REITs own real estate, the share price movement of the REIT parallels the value of the real estate owned. Mortgage REITs invest in mortgages (essentially the same as investing in a bond) and thus are not the best choice when interest rates are low, since the yield is meager. And, if market interest rates rise, the value of the mortgages held drops. The same would be true for investments in mortgage bonds and Fannie Mae Pass-Through certificates.