With rates rising, real estate investment funds have come under pressure.
The XLRE Real Estate ETF, which tracks the S&P 500 REITS sector, is down more than 1% over the past week as competition for high-yield assets intensifies.
State Street Global Advisors lead investment strategist Michael Arone who manages the XLRE ETF explained to The Washington City Times’s “ETF Edge” why that might be normal in a typical rising interest rate environment.
“Because REITS are required to return 90% of their income to investors, that return is attractive. And so when interest rates rise and there are other choices for reliable income, investors sometimes leave REITS to be some sort of more reliable or on least seen as a safe income from that standpoint, ”he said Monday.
However, the underperformance this time may be short lived due to several factors. According to Arone, the reopening of commerce and more activity in commercial spaces such as shopping centers and office spaces could increase demand in the space. Higher inflation could also drive up rents and the value of real estate investments, driving REITS higher.
However, Todd Rosenbluth, CFRA’s director of ETF and mutual fund research, says not all names in the group will fare better.
“If we delve into the REITS sector, which makes up about 2.5% of the S&P 500, there’s a split,” he said during the same interview, pointing to REITs for hotels, resorts, residences and retail as opportunities. and office and industrial REITs as laggards.
Laton Spahr, president of SS&C ALPS Advisors, also sees winners who could ‘thrive’ in space this year.
“On the value side of the equation, we like the apartment sector. We think if we reopen labor mobility, the normalization of what job growth looks like, that’s all good for people moving and apartments will thrive again in our opinion, and the other Side of that coin is storage. As jobs are created and people begin to settle into a new routine, they have to move and storage and relocation go together, ”said Spahr.
Just over a week ago, ALPS launched an actively managed semi-transparent REITs ETF under the ticker ‘REIT’. The ETF rose nearly 1% on Friday, but closed 2% lower this week.