Yet he said REITs look expensive after the rally judging by price-to-book ratios versus the broader market and other financial companies.
“What does appear to be driving the current premium is the search for income at any price. As investors stretch for yield, REITs are a natural beneficiary,” the strategist noted.
The iShares Dow Jones U.S. Real Estate had a 12-month yield of 3.47% as of June 30, according to BlackRock. Yet that figure is “well below” the 10-year average of 4.75%, Koesterich said, adding that REITs’ yields compared to the 10-year Treasury note do not look particularly attractive. Yields on 10-year notes were trading right around 3% on Tuesday.
“Today, investors appear to be paying too much for too little income in a number of asset classes, including REITs,” Koesterich concluded.
iShares Dow Jones U.S. Real Estate