Geopolitical and international crises -- particularly the looming Greek debt predicament -- has rendered global market opportunities a dicey proposition. All eyes are staring at the troublesome European Union member, and failure to promote substantive progress on the debt repayment issue can potentially wreck many equity indices worldwide. However, the domestic markets hardly seem like a worthwhile alternative, given that all three major blue-chip indices have scored record-breaking point levels. Where, if any, are underappreciated investment opportunities?
Real estate investment trusts, or REITs, seemingly offer just the right solution. According to REIT.com, these investment trusts, which are modeled after mutual funds, "provide investors of all types regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends." With the benchmark Dow Jones Equity All REIT Total Return Index (INDEXDJX:REIT) up only 0.59% year-to-date, on paper, REITs appear undervalued relative to other domestic asset classes.
Technically, there is a bullish case to be made for the REIT index. Despite losing more than 12% of valuation from its January 2015 peak, the index's recent price action has decelerated its descent. Further, the long hands of the market have successfully held the index at 1,400 points, which may end up being an extended support line by which the bulls can launch a counterattack.
The REIT index also has a history of entering a consolidation phase -- a period where bulls and bears trade jabs -- before moving on to higher ground. It can be argued that the period between January 2015 until the present time is consolidating the massive 23% gains from October 2014 to the end of January. If so, investors can expect some choppy waters ahead, perhaps for a month or two, before the index starts gaining significant steam.
Fundamentally, the argument is much more mixed. People amongst Generation Y -- commonly labeled as the Millennials -- are typically renters, and this trend will likely continue for the foreseeable future, according to real estate experts. The reason is that "unlike their parents and grandparents, millennials don't view housing as a lifelong investment."
Once In A Lifetime Opportunity
This suggests an excellent opportunity for real estate investors and REITs in general, since the aforementioned trend will potentially provide a constant influx of passive revenue from rentals. In addition, once more of the baby boomers die off, the Millennials will become the largest generation group within the U.S.
However, this once-in-a-lifetime opportunity is contingent upon the health of the underlying economy -- something that few rational people can accept. And while the equity markets have been flirting in and out with record valuations, interest rates have climbed from their historical lows. Will investors continue to buy stocks when it becomes more expensive to do so?
Perhaps, but that may be a risk too rich for most folks.