Real-estate investment trusts were among the hottest stocks of the year, propelled to their biggest gains in nearly a decade by low interest rates and an improving economy.
REITs, which own properties as diverse as office buildings, apartments and warehouses, are sensitive to changes in interest rates because many investors see them as an alternative to fixed-income investments like bonds. When interest rates fall, REITs look more attractive and vice versa.
With most forecasters calling for the Federal Reserve to increase short-term rates from near-zero in 2015, history suggests REITs could be in for a tough year.
But many analysts are predicting REIT shares will continue to perform well, even if interest rates rise.
That is because shifts in interest rates alone don’t set the tone for REIT performance, and sometimes can be drowned out by other factors. In 2015, a stronger economy and increased mergers-and-acquisitions activity could overshadow rate rises, helping to power REIT returns, analysts predict.
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By ROBBIE WHELAN, Wall Street Journal