Volatility has returned to the capital markets and that’s good news for strategic-minded investors. Higher volatility is usually associated with lower prices, which in turn can generate more favorable valuations. Deciding when the valuations look sufficiently tempting, however, is never easy.
Consider two asset classes that have been under pressure of late: REITs and high-yield bonds. Of the two, REITs have been hit harder. For the year through the end of last month, REITs suffered a 2.5% loss, based on the Vanguard REIT ETF (VNQ). High yield bonds fared better by posting a 3.6% rise YTD through October, as per Vanguard High Yield Corporate (VWEHX). Even so, junk took a heavy blow in the July/August correction and since then has only recovered a portion of its former glory.
Both asset classes are distinctive for their yields. By that standard, the price declines in each have brought higher yields. (As always, price and yield move inversely for bonds and equities.) Are the yields tempting?