Beset by rising interest rates, the real estate sector is struggling this year, but those declines could be creating value opportunities and the chance for investors to embrace beaten-up quality names.
Those objectives are made easier with the assistance of active management, confirming the Virtus Duff & Phelps Global Real Estate Securities (VGISX) is a prime idea for investors looking for a curated basket of global real estate equities.
Over the near- to medium-term, the Federal Reserve’s interest rate hiking campaign will figure prominently in the performance of funds such as VGISX.
“Keep an eye on the path of the Federal Reserve’s continued interest rate hikes, which is impacting Treasury yields, said CFP Chuck Failla founder and CEO of Sovereign Financial Group in Stamford, Connecticut. Names that are more sensitive to higher rates will likely continue to underperform until those yields come down,” reported Michelle Fox for CNBC.
Some real estate sub-groups aren’t as sensitive to rising interest as others. Those include retail real estate investment trusts (REITs) and some in the tech REIT space, among others.
As an active fund, VGISX’s sub-industry exposures can be swiftly altered to take advantage of new opportunities while avoiding trouble spots. That’s a pertinent trait because the real estate sector evolved dramatically in recent years, particularly as a result of the coronavirus pandemic. Said another way, there are no guarantees that former darlings of the real estate industry will retain that status.
“For instance, REITs that hold office buildings may not be the best idea right now, as office occupancy rates remain low due to hybrid and remote work. New York City commercial office buildings saw a 45% decline in values in 2020 and 39% in the longer-run, with the latter representing $453 billion in value destruction,” CNBC reports, citing the National Bureau of Economic Research.
Other REIT groups, such as hotels, are supported by recovery trends, while shifting demographics bode well for healthcare REITs, which VGISX has some exposure to.
“Meanwhile, solid fundamentals and positive long-term trends, like an aging Baby Boom population, should provide an advantage to the health-care sector, said Imperio Wealth Advisors’ Morillo. Hospitals, medical offices and long-term care facilities are within that space,” noted CNBC.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.