Investments in real assets, whether on the equity side or the debt side, offer seemingly endless options for fixed income. If you can build it or finance it, you can invest in it.
One easy-to-understand way to attain real estate participation for clients is through real estate investment trusts, which allow individual investors to buy shares in commercial real estate portfolios that generate income through leasing and property management from a variety of properties, said certified financial planner Chris Schiffer, executive vice president with AEPG Wealth Strategies in Warren, New Jersey.
“Generally, when the economy is doing well, there is a higher demand for real estate, benefiting the REIT through appreciation, higher occupancy and higher rent payments,” he said. “Also, REITs can protect in down markets, due to their low correlation to stocks.
“The REIT still collects its rents in recessions and down markets, which is paid out to the investors.”
Schiffer cautioned that some REITs may be excessively leveraged, overly speculative or illiquid (if non-traded).
More from Fixed Income Strategies:
Advisors look beyond mainstream bond funds
A happy retirement is about more than just money
Investors stock up on nontraditional bonds, strategies
Some advisors are using so-called interval funds, non-traded closed-end funds that offer to buy back a percentage of outstanding shares at different time intervals, to generate income for portfolios.
For his part, Michael Ciccone, CFP, investment advisor with Tradition Capital Management in Summit, New Jersey, uses these in the forms of private real estate funds that invest directly in income-producing real estate properties, and private real asset funds that invest in timberland, farmland and infrastructure.
“Because the majority of these interval funds are invested in private non-traded funds, with just a small public security sleeve for liquidity, these investments are largely insulated from market volatility, and instead the [net asset values] are mainly driven by the appraised values of the underlying properties,” he said. “This serves to provide investments with very stable and low volatility growth and income production.”
In contrast are limited partnership vehicles, or LPs, available only to accredited investors and less liquid than interval funds but, in general, more efficient and able to deliver better returns, all else being equal, said Eric Mancini, CFP, director of investment research and wealth advisor with the Traphagen Financial Group.
Mancini uses limited partnerships for both private real estate credit and equity. LP investments are more “pure,” he said.
Be the first to comment