Consider REIT ETFs as Trade Uncertainty Looms Over Markets

Real estate investment trusts and sector-related ETFs could be an area for investors to look to as the U.S.-China trade tiff grips the markets.

REITs are comprised of companies that own office towers, hotels, shopping malls and other commercial properties, offering investors exposure to the domestic economy and away from the uncertainty associated with the global supply chain, the Wall Street Journal reports.

Real estate’s relative safe-haven status was in full effect during the recent two-day selloff after trade talks between the U.S. and China broke down. On May 10 and May 13, the REITs segment gained 0.9%. In comparison, big manufacturer shares declined by around 4.5% while the broader S&P 500 fell 2.1% during the period.

Looking ahead, Joel Beam of investment-management firm Salient Partners LP. argued that stable investments like real estate are more attractive as escalating trade tensions could keep tariffs in place for the foreseeable future.

“The safe-haven mentality starts to resonate with investors,” Beam told the WSJ.

Nevertheless, there are risks. Amanda Black, managing director of investment-management firm Jaguar Listed Property, underscored risks to property owners during a general economic slowdown, political instability or volatility in the capital markets, but we have not experienced any full fallout yet.

“Our conclusion is that for U.S. REITs, it is mostly a nonevent,” Black told the WSJ.

Rising interest rates may be the biggest risk since borrowing costs would rise along with rates and investors may turn to safer alternatives as well.

ETF investors who are interested in the REITs space can also look to sector-specific options, such as the Vanguard REIT ETF (NYSEArca: VNQ), iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR), Schwab US REIT ETF (NYSEArca: SCHH), and the Real Estate Select Sector SPDR Fund (NYSEArca: XLRE).

Real estate investors also enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.

For more information on the real estate investment trusts segment, visit our REITs category.