Real estate investment trusts and related REIT ETFs are rebounding as investors look back into attractive yield-generating assets with the Federal Reserve signalling it will ease back on further interest rate hikes.
Year-to-date, the Vanguard REIT ETF (NYSEArca: VNQ) advanced 12.3%, iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) increased 11.8%, Schwab US REIT ETF (NYSEArca: SCHH) gained 12.1% and Real Estate Select Sector SPDR Fund (NYSEArca: XLRE) added 11.8%.
Rising interest rates previously dragged on the REITs sector, hurting sales as would-be buyers faced higher borrowing costs and diminished the relative appeal of the sector’s dividend payouts. However, as the Fed showed a more dovish stance on its monetary policy this year, revealing it will be more patient with future rate hikes, investors turned back to REITs for their attractive yields, strong earnings growth and cheap valuations, the Wall Street Journal reports.
According to EPFR Global data, about $1.8 billion in investment money has flowed back into global real-estate equity funds in January, the first inflows after 23 months of outflows.
“Real-estate companies can overcome higher rates, but if the Fed’s on hold and borrowing costs are staying lower, that’s great for interest-rate sensitive companies,” John Creswell, executive managing director at Duff & Phelps Investment Management Co., told the WSJ.