09/23/2016 Commentary

This week was characterized by apprehension and euphoric relief as the market sold off in the early hours of Fed Wednesday before spiking dramatically as the “no hike” was called. This relief rally carried through the rest of the week for total returns of around 4% for the REIT index. With an overweight to triple nets which are considered to be interest rate sensitive, 2CHYP had been suffering as interest rates rose in the weeks preceding the Fed decision, but the portfolio recovered nicely.

In the hours before Yellen gave her speech, we added a new position to the portfolio, Easterly Government Properties (DEA). It has among the highest quality FFO with minimal capex and a very long remaining lease duration that nearly guarantees revenues since 96% of leases are with the US government. DEA had been beaten up with the rest of triple net REITs so we took the opportunity to grab the discounted shares.
Heading into next week, it is hard to tell whether the euphoria will continue or if fear will creep back in. We suspect the final week of the quarter may bring forced buying as fund managers attempt to get fully invested so as to not show cash holdings on the end of quarter report. This sort of window dressing activity often leads to mispricing in both directions as they scramble to be associated with winners and dispose of losers.

We will be patiently watching from the bushes, ready to snatch up whatever opportunity presents itself.

Commentary may contain forward-looking statements which are by definition uncertain. We retain no obligation to update or correct forward-looking statements should the available information change.

2CHYP Portfolio Snapshot

09/23/2016 2CHYP Performance since inception

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2CHYP Weekly Trade Confirmation Report