Investors may want to keep an eye on real estate investment trusts and sector-related exchange traded funds this year as fundamental factors are still supportive of the asset class.
REITs were among the best performers Tuesday, with the IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF) up 2.1% and iShares Residential Real Estate Capped ETF (NYSEArca: REZ) 2.3% higher.
ROOF tracks a group of small-cap real estate firms, including a 30.7% tilt toward micro-caps, 66.7% small-caps and 2.6% mid-caps. REZ includes a group of residential REITs 47.8%, health care REITs 31.6% and specialized REITs 20.3%.
Broad REIT ETFs were also outperforming the equities markets Tuesday. For instance, the iShares Cohen & Steers Realty Majors (NYSEArca: ICF), Vanguard REIT ETF (NYSEArca: VNQ), Schwab US REIT ETF (NYSEArca: SCHH) and SPDR Dow Jones REIT ETF (NYSEArca: RWR) were all about 2.0% higher mid-Tuesday.
Matt Werner, a portfolio manager at Chilton Capital Management, argues that REIT fundamentals were better than projected, with long-term Treasury yields “well below” Chilton’s expectations, reports Sarah Borchersen-Keto for REIT.com.
Expectations for higher interest rates usually drag on REITs as the dividend-yielding equity asset look less attractive relative to safer government bonds in a rising rate environment.
While the Federal Reserve is moving toward interest rate normalization, the Fed has reassured markets that it will make gradual hikes.