A Real Estate Rebound: REIT ETFs Are Back

The real estate sector was highly vulnerable to the 2020 coronavirus market pullback, but proving that things change quickly in financial markets, the sector has been the best-performing group in the S&P 500 this year.

That stellar showing is embodied by a slew of exchange traded funds, including the ALPS Active REIT ETF (NASDAQ: REIT). Since its February inception, the actively managed ALPS ETF is higher by a tidy 21.38%, as of Aug. 6. That’s well ahead of the S&P 500’s nearly 18% gain and REIT’s showing is all the more impressive when measured against the S&P 500 considering that the ETF didn’t debut until Feb. 25. A confluence of factors is supporting upside for REIT ETFs.

“REITs have benefited from inflation concerns, says Todd Rosenbluth, head of ETF and mutual-fund research at CFRA. Real estate is often considered a hedge against inflation,” reports Lori Ioannou for the Wall Street Journal. “Low yields in the bond market are also fueling interest in REITs, Mr. Rosenbluth says. REITs are required to pay out 90% of taxable income to shareholders as dividends.”

Investors scrambling for income is one of the factors boosting the real estate sector this year. For example, the dividend yield on the widely followed FTSE Nareit All REITs Index is 3%, or more than double the comparable metric on the S&P 500.

A growing domestic economy and low interest rates are bolstering the case for commercial and residential real estate assets. However, the broader real estate sector and the related, traditional ETFs could be challenged by the delta variant of the coronavirus.

That new stage in the global pandemic is prompting some companies to delay workers’ returns to offices, potentially straining office REITs still struggling from the onset of COVID-19. To that end, REIT’s status as an actively managed is all the more meaningful for investors.

REIT can steer clear of office REITs if the pandemic pressures that group. Likewise, the fund can up its allocations to real estate segments that are thriving, such as data center REITs and warehouses, among others.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.