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.
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.