This Active ETF Offers a Different Approach to Real Estate

The residential real estate market will continue to be at the mercy of interest rate policy throughout 2024, but there are other corners of the real estate market to consider. One active exchange traded fund, in particular, takes a different approach to real estate.

While the capital markets continue to expect the Fed to cut rates, the interest rates on mortgages have fallen a percentage point since October. Nonetheless, it’s still a far cry from where rates were at the height of the pandemic. While market experts do expect rates to come down, it won’t be a precipitous drop that opens up the floodgates to home affordability, especially given the current state of prices.

“Mortgage rates are likely to remain well above pandemic-era record lows because financial markets increasingly believe the country will avoid a recession in 2024,” said Redfin Chief Economist Daryl Fairweather. “Mortgage rates will fall to about 6.6% by the end of 2024. The gradual decline in rates combined with the small dip in prices will bring homebuyers some much-needed relief.”

A Different Approach to Real Estate

The commercial real estate front has fallen out of favor since the pandemic, but there are other niche opportunities available. A different approach to real estate can yield outperformance with the actively managed Avantis Real Estate ETF (AVRE).

Per its baseline fund description, AVRE provides exposure to real estate securities focused on income derived from real estate investments and structured in a similar way as real estate investment trust (REITs). One of those REITs, which is the fund’s largest holding as of January 25, is real estate logistics company Prologis. With its focus on industrial real estate, the company had a stellar 2023, and remains positive for the 2024 outlook.

“We closed 2023 adding another year of exceptional performance. I couldn’t be more proud of our team,” said Hamid R. Moghadam, co-founder and CEO of Prologis. “While uncertainties remain in the economic and geopolitical environment, we are positive about the outlook for 2024. We remain focused on executing the strategy outlined at our recent Investor Forum to drive significant value from our global scale and continue to be a best-in-class partner to our customers.”

With its approach to niche areas, AVRE essentially shuns the wider effect of interest rates. This contrasts with other real estate markets that are more sensitive to rate moves like residential real estate.

AVRE Chart

AVRE data by YCharts

For more news, information, and analysis, visit the Core Strategies Channel.