Real estate investment trusts and sector-related exchange traded funds have been among the most popular investments in an extended low-rate environment. However, after this year’s run, REITs may be starting to look pricey.
The Vanguard REIT ETF (NYSEArca: VNQ) is the eighth most popular ETF of 2016, adding $4.6 billion in net inflows year-to-date, according to ETF.com.
SEE MORE: Preparing for Big Changes to a Popular Financial ETF
Another catalyst driving real estate stocks and exchange traded funds higher this year is the group’s transition to the eleventh sector at the end of this month. That announcement was made in 2014 by index providers S&P and MSCI, so markets have had ample time to absorb real estate departing financial services to become its own sector.
Ohave pointed out that the REITs sector could gain momentum ahead as Real Estate will separate from Financials to become its own S&P 500 sector, which could help the new REITs sector attract greater inflows from underweight money managers.
[related_stories]The S&P Dow Jones Indices stated it would add an 11th sector to its Global Industry Classification Standard, creating a new Real Estate Sector from the Financial Sector. The changes to the S&P 500 index will be implemented after the close of business on September 16, 2016.
SEE MORE: Popular Plays for REIT ETFs Ahead of Sector Reclassification
However, some market participants believe active managers are already positioned for real estate becoming its own sector, which could keep a lid on the impact the transition will have on ETFs such as VNQ.
“Stifel’s Matthew Heinz uses data from (Stifel owned) Keefe Bruyette Woods‘ Melissa Robert which shows actively managed portfolios are already accounting for the change, holding a 3.91% aggregate position in real estate at the end of the second quarter, an 80 basis point increase in active REIT allocations in the past year,” reports Teresa Rivas for Barron’s.
Still, some large-cap managers, by some estimates as many as half, have no exposure to REITs. If they have not already done so, those managers will need to buy real estate stocks soon, assuming they benchmark to S&P or MSCI indexes.
In addition to VNQ, the SPDR Dow Jones REIT ETF (NYSEArca: RWR) and iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) are among the most popular REIT ETF plays.
For more information on real estate investment trusts, visit our REITs category.
Vanguard REIT ETF
