Investment Managers Offload Property for Bonds

Published / Last Updated on 25/10/2022

We have seen a trend that several investment fund managers are starting to offload residential property investments such as Real Estate Investment Trusts, directly held real estate and investments in residential development firms in favour of corporate bonds.

What is a Corporate Bond?

Rather than borrowing money from a bank in the form of a loan for business development, mergers and acquisition or capital expenditure, some larger companies may issue corporate bonds.   These are technically an ‘IOU’ with a promise to an interest rate/coupon return with full capital repayment at maturity i.e., the end of the loan period.  Think of them like interest only mortgages.  They are corporate bond stocks, similar in nature to government bond stock, known in the UK as ‘gilts’, where governments borrow money, pay interest on the loan and then repay the debt at maturity.

Bond yield i.e., annual earnings/returns divided by the capital value are linked to but higher than government bonds/gilt yields and interest rates.  Given the recent turmoil in the UK with interest rates going up, gilt yields going up and capital values falling, this has also impacted on making corporate bonds cheaper with higher bond yield returns.

Property

If income yields from property are falling due to interest rate rises and then capital values i.e., property values to fall, investment fund managers are starting to sell off real estate linked investments for higher yielding corporate bonds.

What does that mean for you?

If professional investors are starting to move away from property, this gives a clear indication that confidence in property and related firms is falling and perhaps and indicator for what you may wish to consider doing with our own investments.

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