Hey everyone, welcome back to ‘The Dividend Uncle’! Today, I’m going to break down the tremendous gains my REITs portfolio made over the past two months, which I see as a prelude to a bigger recovery in the REIT sector that could be just around the corner.

REITs have faced a tough year with rising interest rates weighing them down, but this recent performance hints at a potential shift in momentum. In fact, my REITs portfolio gained $32,400 over two months in July and August, on a portfolio size of about $283,000. That’s an 11.5% gain, which stacks up pretty well against the CSOP iEdge S-REIT Leaders Index ETF, which was up 8.5% in the same period.

What does this tell us? I think it offers a few valuable lessons about what might be coming, a possible REIT revival, the strength of buy-and-hold investing, and the benefits of taking calculated risks.

Before we dive deeper, if you’ve been finding value in my posts and videos and enjoy our community’s discussions on REITs and other dividend stocks, I’d really appreciate it if you could hit the ‘like’ button. It might seem like a small gesture, but it means a lot to me and helps me keep bringing you more of these insights. Thanks for your support!

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

Now, let’s get into the details!

Breaking Down My $32,400 Gain

First, let’s talk numbers. Where did this $32,400 gain come from?

I’ve talked before about the benefits of holding a diversified portfolio of REITs, and this rally gave us a great example of why that strategy works. Let’s break it down into three main categories:

1. Blue Chip REITs. The more stable, blue-chip REITs showed incredible strength during this initial rally. I’ve put the returns in dollar amounts and percentage gains in the table, in order of dollar amount returns. Frasers Logistics and Commercial Trust deliver the highest return at around $1800, followed by CapitaLand Ascendas REIT, Mapletree Pan Asia Commercial Trust, CapitaLand Ascott Trust, Mapletree Industrial Trust, and CapitaLand Integrated Commercial Trust, at around $1400 each. In short, it’s clear that these core holdings were no slouch. The blue chips all delivered solid returns over these two months. They served as the bedrock of the portfolio, balancing the volatility of the more aggressive plays.

2. US Office REITs. Next, a substantial portion of the gains also came from US office REITs which I hold for my more opportunistic portfolio, as well as longer term. These are Keppel Pacific Oak US REIT and Manulife US REIT. I have elaborated in my earlier video on “3 REITs to Buy, and 1 to Avoid”, that the much better outlook for interest rates will push their prices higher.

Now, both of these have been under immense pressure earlier this year. But here’s the thing, both saw dramatic rebounds in this period. Manulife US REIT and Keppel Pacific Oak earned me $13,900 and $3,200 respectively, gaining about 60% and 40% respectively. That’s a testament to the potential upside when market sentiment shifts, even in what many consider higher-risk segments.

3. Other overseas REITs. Lastly, let’s talk about the other overseas REITs like CapitaLand China Trust, and Link REIT listed in Hong Kong. While not as dramatic as the US office REITs, CapitaLand China Trust and Link REIT managed to pull in a gain of around $1,100 and $1,600 over the same period. It’s an example of how having a diversified portfolio spread across different geographies can help capture gains from various market movements.

In percentage terms, CapitaLand China Trust’s performance is far less exciting than Link REIT’s. As I mentioned in my earlier videos, while CapitaLand China Trust has been affected by its logistics properties, the downturn in prices does seem overly done. The overall improvement in interest rate outlook is likely to help mitigate some of the investors’ concerns as well.

All in all, it’s been a rewarding couple of months, and it’s set the stage for what could be a more significant REIT rally on the horizon.

The Potential for a REIT Revival

First off, let’s talk about the potential for a REIT revival. The recent gain of 8.5% in the CSOP iEdge S-REIT Leaders Index ETF over the past two months isn’t just a nice bump—it could be the beginning of a much bigger recovery for REITs. You see, REITs have been hit hard over the past year due to rising interest rates, which has caused many of them to underperform. However, the tide appears to be turning.

The REIT sector is highly sensitive to interest rates, and with the US Federal Reserve potentially set to cut rates from September—yes, you heard me right—market expectations are for at least two cuts this year! This means the gains we’ve seen recently could just be a prelude to what’s to come. If the Fed delivers as expected, we could see a significant rally in REITs, similar to what we’ve witnessed during past rate-cutting cycles. The 8.5% rise is a strong signal that investors are already positioning themselves for this potential shift.

So, if you think this 8.5% gain was impressive, imagine what could happen if the anticipated rate cuts come to fruition. The stage is set for a possible substantial rally, and this might just be the beginning!

The Value of Buy and Hold

Now, let’s shift gears and talk about the value of the “Buy and Hold” strategy. The past two months have reinforced one of the oldest lessons in investing, staying the course can pay off big time. Remember the sharp downturn we saw in early August? It was triggered by the unwinding of the yen carry trade, which caused a ripple effect. The Japan Topix dropped by 12%, the US Nasdaq fell by 4%. Even the C SOP iEdge S-REIT Leaders Index ETF was down about 3%.

But here’s the thing—if you panicked and sold during that dip, you would have missed the rebound that followed. This downturn was of of the worst we’ve seen since 2015. But by staying patient and holding onto your investments, you’d have been well-positioned to capture the gains when the market bounced back. This is why having a long-term strategy and resisting the urge to react to every dip can often be the smarter move.

Taking Calculated Risks Can Pay Off

Lastly, let’s talk about taking calculated risks. I mentioned earlier about the two US office REITs, Keppel Pacific Oak US REIT and Manulife US REIT. Now, these REITs were under significant pressure earlier this year, which led many to ask if it was worth taking a chance on them. Well, I decided to take a shot at Keppel Pacific Oak and held on to my Manulife US REIT. As we’ve seen, both have provided pretty good returns for those willing to step in when others were cautious.

But remember, it’s not about taking risks recklessly, it’s about sizing those risks appropriately within a diversified portfolio, depending on your individual risk tolerance and life stage. For instance, if you’re a younger investor, maybe you can allocate about 20% to these riskier plays. But if you’re nearing retirement, you’d probably want to keep it closer to 5% to 10%. The key is understanding your risk tolerance and where you are in your financial journey.

Preparing for What’s Next

So, where does that leave us? The last two months have been a great reminder of why we invest in REITs and why a diversified, balanced approach works. With the potential for rate cuts coming soon, a REIT revival could be on the horizon. And for those willing to stay the course and take some calculated risks, there could be some exciting opportunities ahead.

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