Invest in Real Estate While Mortgage Rates Are Down With This ETF

Amid fears of an impending recession, mortgage rates fell to their lowest levels since April. Freddie Mac reported on Thursday that the average rate on a 30-year fixed-rate mortgage is 4.99% this week, down from 5.3% a week earlier.

Though the average 30-year fixed-rate mortgage remains above its 2.77% average from a year ago, it’s dropped considerably from its 13-year high of 5.81% in June.

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” said Sam Khater, Freddie Mac’s chief economist, in a news release announcing results of the mortgage giant’s survey. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

With rates coming back down, investors looking to gain exposure to real estate may want to consider the Avantis Real Estate ETF (AVRE). Launched last September, AVRE gives exposure to real estate securities that are focused on income derived from investments within real estate and are structured similarly to real estate investment trusts (REITs).

The actively managed AVRE attempts to beat the S&P Global REIT Index and seeks to invest in companies that have higher returns or better risk characteristics. A REIT invests primarily in income-producing real estate or else makes loans to individuals involved in the real estate industry.

REITs and REIT-like entities typically distribute a large portion of their earnings to qualify as tax passthrough entities, thus keeping high levels of leverage available to finance their growth or operations. AVRE can underweight or exclude securities with high leverage to achieve a better risk-return profile at times when borrowing, refinancing, or raising capital may be more expensive for those securities.

The portfolio managers consider a company to be engaged in the real estate industry if at least 50% of its revenue or 50% of its market value at the time of purchase is attributed to the ownership, construction, management, or sale of real estate.

AVRE carries an expense ratio of 0.17%.

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