Despite interest rates rising to their highest level in recent years, real estate is still an attractive investment and hedge against inflation.
Global REIT performance hasn’t rebounded like traditional stock markets, and large drawdowns have led to higher future return potential. Real estate, in its various forms, historically has provided a hedge against inflation and rising interest rates. REITs have delivered attractive returns in a wide range of inflationary environments, with the ability to offset increased costs by pushing rents higher as demand for space grows.
As investors are making strategic asset allocation adjustments for the fourth quarter, here are four ETFs that can help to hedge against inflation and serve as a portfolio diversifier.
1. The ALPS Active REIT ETF (REIT)
REIT consists of common equity securities of U.S. REITs, but may also include common equity of U.S. real estate operating companies which are not structured as REITs, preferred equity of U.S. REITs, and real estate operating companies, as well as cash and cash equivalents.
The fund’s proprietary methodology gives it an advantage over other funds. In selecting its constituents, REIT takes into account the intrinsic value of the underlying properties held by REITs as well as the corresponding intrinsic value of the REITs in which the fund seeks to invest, according to VettaFi.
While still posting losses, REIT has had the strongest performance out of the four offerings. The fund is down 14.55% over a one-year period, according to VettaFi.
2. The Invesco Active U.S. Real Estate Fund (PSR)
PSR offers exposure to REITs within the U.S. equity market. The fund structures and selects its investments primarily from a universe of securities that are included within the FTSE NAREIT All Equity REITs Index, which has just fewer than 50 holdings diversified primarily across mid- and large-cap equities.
The fund’s selection methodology uses quantitative and statistical metrics to identify attractively priced securities and manage risk.
PSR has decreased 15.78% over a one-year period, according to VettaFi.
3. The Cambria Global Real Estate ETF (BLDG)
BLDG provides exposure to a global basket of real estate securities, including REITs and real estate management and development firms. The fund allocates 40% of its assets in equities listed outside of the U.S. and targets a total of 50–100 securities with equal weightings.
The selection process uses Cambria’s multi-factor algorithm, which includes value, quality, and momentum. Value metrics include price-to-sales (P/S) ratio, price-to-earnings (P/E) ratio, funds from operations (FFO), dividend yield, and enterprise multiple (EV/EBITDA). Quality metrics involve accruals or debt/asset ratios, and momentum uses the stock-price momentum metrics or the trailing (preceding) 12-month total returns, according to VettaFi.
BLDG has lost 17.39% over a one-year period, according to VettaFi.
4. The Avantis Real Estate ETF (AVRE)
AVRE invests in global real estate stocks that are expected to have higher returns or better risk characteristics, similar to BLDG.
The fund holds real estate companies stretching across a variety of property sectors, including REITs and REIT-like entities, located in countries included in its benchmark index, the S&P Global REIT Index, which currently includes the U.S., Japan, Australia, the U.K, and Singapore, among others.
Incepted just less than a year ago on September 28, 2021, the fund has not yet amassed a one-year track record. The fund is down 26.55% year-to-date, however, according to VettaFi.
For more news, information, and strategy, visit the ETF Building Blocks Channel.
