In September, the Bank of England committee decided to reduce interest rates by 0.25%. This is the beginning of what many see as a cycle of cuts that could last several years. This cycle is nothing recent. In fact, history shows us that it is correlated with the broader economy. Here’s how FTSE100 reacted when the last time we had multiple rate cuts over a long period of time.

A flash from the past

The last time interest rates fell sharply was in 2008/09. This rate dropped from 5% in September 2008 to 0.5% in April 2009. This was a reaction to the global financial crisis and was intended to stimulate demand in the economy.

At the beginning of September, the FTSE 100 index was at 5,595 points. A year later it was already at 5,120 points. If I rapid forward another year, in September 2010 the rate was essentially the same.

In this case, interest rate cuts did not result in a significant boost in share prices on the stock exchange in the following period. However, there is a key reason why I see many objections claiming that past performance is not indicative of future returns.

This time we are not in the same situation. In the 2008/09 season, a black swan event caused widespread panic. We are currently in a period of steady (though low) economic growth. The reason for the upcoming interest rate cuts is to bring inflation under control. The central bank cuts more from a position of strength than of weakness. That’s why I think the FTSE 100 could rise over the next year and some sectors could really outperform.

My area of ​​focus

One area that I think could do well is real estate investment trusts (REITs). These are stocks where the investment manager owns a real estate portfolio. A good example is British soil (LSE:BLND).

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This REIT’s dividend yield is 5.27%, and its stock is up 42% over the past year. It owns commercial facilities, including campuses, retail parks and urban logistics centers. The latest annual report showed a loan-to-goodwill ratio of 37.3%. This means that if you want to buy a recent property, 37.3% of the price paid comes from a bank loan.

As a result, lower interest rates should lower the cost of these loans in the future. This, in turn, means lower costs for the REIT. If rental and lease income remains the same, overall profit should boost. Moreover, if interest rates fall and economic growth increases, demand from renters should also boost.

One risk is that the stock is starting to look overvalued, with a price-to-earnings ratio of 15.34. This may limit the scale of further share price increases. Even with that risk, I have this stock on my watchlist.