This Active ETF Has Flexibility in a Changing Real Estate Market

When ETF investors want real estate exposure, they’re not relegated to just the residential market. That’s imperative in the current market environment. The ALPS Active REIT ETF (REIT) provides this flexibility.

With mortgage rates relatively high, the residential real estate market is languishing. The commercial side is still feeling the effects of the work-from-home dynamic caused by the pandemic. That said, it doesn’t mean opportunities don’t exist in real estate or more specifically, real estate investment trusts.

One of the attractive features of REITs is their fixed income opportunities. REIT has a 30-day SEC yield of 3.61% (as of January 31). And this ETF can help supplement monthly income while getting potential price appreciation from the real estate market.

REIT comprises common equity securities of U.S. REITs  as well as the 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. The active strategy component lets experienced portfolio managers handpick the fund’s holdings. This maintains necessary flexibility in the current market.

Locating Niche Markets

As mentioned, the residential and commercial markets are posing challenges to real estate investors. REIT focuses on niche corners of the market, such as its holdings in Simon Property Group, which focuses on shopping malls, outlet centers, and community/lifestyle centers. Getting creative in the real estate market is almost imperative and REIT’s portfolio managers can deftly locate those opportunities.

Simon Property Group comprises REIT’s largest holding. Given its fourth-quarter performance, it’s easy to see why.

“This was an excellent quarter and year for Simon Property Group, which was capped off by our 30th anniversary as a public company in December. Over that 30-year period, we are proud to have delivered a total return to shareholders of 3,100%,” said David Simon, chairman, Simon Property Group CEO. “In 2023, we generated record annual Funds From Operations of nearly $4.7 billion, executed over 18 million square feet of leases, delivered 13 significant redevelopment projects, and completed several major financing transactions that reinforced our industry-leading balance sheet. We achieved a 2023 total shareholder return of 29.3% and returned $2.9 billion to shareholders in dividends and share repurchases.”

As Yahoo Finance noted, SPG’s strong performance in 2023 shows that it’s recovering from the post-pandemic lull of commercial real estate. Furthermore, the company increased its dividends, providing further evidence that its growth trajectory skews toward the upside.

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