“Although the attention from becoming an independent sector could add some temporary support to REITs, we would likely become more constructive on the sector at lower price levels given its relative attractiveness, especially compared to Utilities,” according to a BMO Capital Markets note posted by Amey Stone of Barron’s.
When S&P Dow Jones Indices and MSCI announced they would create an independent real estate sector, J.P. Morgan projected that active equity funds were so underweight toward REITs that the new sector could cause $100 billion flows to the category. Since the newly minted sector would rival in size to utilities, telecoms and materials sectors, a number of fund managers who have not included REITs exposure may eventually bulk up on real estate.
SEE MORE: 44 Best REITs ETFs to Generate Yields
BMO “initiated its coverage of the REITs sector with a “neutral” rating on Friday. BMO sees advantages to the sector reclassification, which could increase asset flows, but is also worried about high valuations and a rising interest rate environment over the next few years,” according to Barron’s.
For more information on real estate investment trusts, visit our REITs category.
Vanguard REIT ETF