Active REIT ETFs are a strong choice for 2023 as they started the year off on a high note, outpacing broader markets.
Large drawdowns in global REIT’s performance last year 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.
Three of the four active REITs ETFs available to investors are outpacing broader market ETFs year to date, including the SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 ETF (IVV), which are each up 6.5%, and the Vanguard Total Stock Market ETF (VTI), which is up 7% in 2023, according to ETF Database.
1. The ALPS Active REIT ETF (REIT)
REIT is leading the active REIT ETFs segment by year-to-date returns. The fund is up 9.13% over one year.
REIT comprises common equity securities of U.S. REITs but may also include common equity of U.S. real estate operating companies that 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 considers 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.
2. The Invesco Active U.S. Real Estate Fund (PSR)
PSR takes second place among the active real estate ETFs, returning 8.60% year to date.
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.
3. The Avantis Real Estate ETF (AVRE)
AVRE is up 7.20% year to date, slightly outpacing broader markets. 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.
4. The Cambria Global Real Estate ETF (BLDG)
Having returned 3.07% year to date, BLDG is the only fund in the segment underperforming broader markets in 2023.
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 the 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.
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