2 REITs That Should Do Well Even With Rising Interest Rates

NEW YORK (Real Money Pro) -- The significant rise in interest rates this year is helping buoy the financial sector, as banks' net interest margins improve and returns on insurers' portfolios get a boost.

It's possible to view the flip side of that move and consider the negative headwind that higher interest rates have had on a variety of high-yield sectors. Some decent bargains are emerging for investors searching for yield.

First off, interest rates won't spike much from here. The yield on the 10-year Treasury bond will have a difficult time crossing and maintaining the 2.5% level in the near term. European and Japanese central banks are still fully engaged in providing additional liquidity and it's hard to see another leg up being triggered by robust global economic growth.

Utilities, after performing well in 2014, have pulled back about 10% thus far in 2015. There aren't, however, see many bargains in the sector, which already looked extended on a valuation basis before its rise in 2014. (I am heavily underweight in utilities.)

Real estate investment trusts (or REITs) have also been under pressure, but their prospects are better. They should do fine once interest rates stabilize at or nearly at current levels. In particular, the lodging space is desirable as demand continues to grow faster than supply, producing solid mid- to single-digit revenue per available room (RevPAR) as well as improved occupancy levels.

Two favorite names in the sector are Summit Hotel Properties (INN) and Chatham Lodging Trust (CLDT), both of which are offering solid entry points after recent declines, as interest rates have risen.

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