Why Schlifske Prefers Mortgage REITs and High Yield Debt Instruments



John Schlifske’s view on the current economic environment

John Schlifske believes the low growth environment will continue in the short term. He thinks that the equity market may not yield high returns iIn this environment.

Jeffrey Gundlach, another prominent fund manager, stated that “risk markets have a poor risk-reward setup. Using the stock market as a proxy, the S&P 500 (SPY) could have 2% upside and up to 20% downside for a 10:1 risk-reward ratio.” According to him, the profit margin of the S&P 500 Index (SPXL) (QQQ) has peaked. He sees limited upside for the equity market in a low growth environment.

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Schlifske prefers mortgage REITs and high yield debt

John Schlifske prefers investment in mortgage REITs (REM) (VNQ) (IYR) and high-yield debt instruments in this low growth and low interest rate environment. According to him, these instruments have structured credit. Mortgage real estates (MBB) have low inherent risk and could provide good returns in this environment. Jeffrey Gundlach also advised investors at the Sohn Investment Conference 2016 to buy mortgage REITs.

Currently, the US (VFINX) (VOO) has positive interest rates and positive yields while other developed markets (EFA) such as Europe (EZU) (VGK) and Japan (EWJ) have negative interest rates. This is making US Treasury bonds (TLT) an attractive debt investment.

In the next part of this series, we’ll analyze John Schlifske’s view on the global markets after the Brexit decision.


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