Real estate investment trusts are gaining traction in the current lower-for-longer yield environment, but that does not mean that investors should blindly pile into this sector.
On the upcoming webcast, A Differentiated Approach to REIT Selection, Jordan Farris, Managing Director, Head of ETF Product Development, Nuveen; and Silvia Kitchener, Director, Global Equity Indices, S&P Dow Jones Indices, will discuss a differentiated approach to REIT selection, identifying the benefits of short-term REITs to help financial advisors enhance their portfolio and better manage potential risks.
Specifically, the NuShares Short-Term REIT ETF (BATS: NURE) tries to reflect the peformance of the Dow Jones U.S. Select Short-Term REIT Index, which is comprised of real estate investment trusts that invest in residential or commercial real estate with a shorter-than-average lease duration than REITs investing in other sectors.
NURE also focuses on REITs with short-term lease agreements which may be less volatile and sensitive to interest-rate changes than longer-term REIT. These types of shorter-term REITs may be a good way for income-minded investors access yield generation in a rising rate environment as short-term contracts allow businesses to more quickly reprice and adapt to changing market environments. Due to the REITs structure that allows the majority of revenue to be distributed as income to shareholders, businesses’ prudent reactions could translate to higher returns for investors.
The underlying index concentrates holdings in apartment buildings, hotels, self-storage facilities or manufactured home properties. The benchmark will also exclude mortgage REITs, hybrid REITs, certain other types of REITs, real estate finance companies, mortgage brokers and bankers, commercial home builders, large landowners and subdividers of unimproved land, and companies that have more than 25% of their assets in direct mortgage investments. Components are also weighted by float-adjusted market capitalization where no single REIT can make up more than 5% of the index as of any rebalance in March, June, September and December.
Current holdings include apartment REITs 48.5%, hotel REITs 24.1%, self storage REITs 17.3% and manufactured home REITs 10.1%. Top holdings include Invitation Homes 6.0%, Sun Communities 5.6%, Equity Lifestyle Properties 5.6%, Mid-America Apartment 5.2% and Avalonbay Communities 5.0%.
Financial advisors who are interested in learning more about real estate investment trust strategies can register for the Tuesday, December 3 webcast here.