With rising interest rates, 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 increases.
State Street Global Advisors’ chief investment strategist Michael Arone, who manages the XLRE ETF, explained to CNBC’s “ETF Edge” why this might be normal in a typical rising interest rate environment.
“Since REITS have to return 90% of their income to investors, that return is attractive. So when rates are rising and there are other opportunities for reliable returns, investors sometimes leave REITS for more reliable, or at least more reliable, returns.” Perceived as a secure income from this point of view, “he said on Monday.
However, this time’s underperformance may be short-lived for a number of reasons. According to Arone, the reopening of retail and more activity in commercial spaces such as shopping centers and office space could increase the demand for space. Heightened inflation could also boost rents and the value of real estate investments and drive REITS higher.
However, Todd Rosenbluth, CFRA director of ETF and mutual fund research, says not all names in the group will outperform.
“If we look at the REITS sector, which is roughly 2.5% of the S&P 500, you have a split,” he said in the same interview, pointing to hotel, resort, residential and retail REITs as an opportunity and opportunity for office and industrial REITs as latecomers.
Laton Spahr, President of SS&C ALPS Advisors, also sees winners who could “thrive” in this area this year.
“On the value side of the equation, we like housing. We think if we reopen labor mobility, normalize employment growth, all of this will be good for the people who move, and housing will flourish again in ours.” Opinion, and the other side of that coin is storage. When jobs are created and people start to get back into a new routine, they have to move and storage and movement belong together, “said Spahr.
A little more than 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 for the week.
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