An Active REIT ETF? A New Real Estate Vehicle Is Tempting Investors

Most real estate investment trusts (REITs) exchange traded funds (ETFs) are passively managed. However, the newly minted ALPS Active REIT ETF (NASDAQ: REIT) brings active management to an asset class that’s conducive to more than just passive indexes.

The new research-driven, high conviction REIT is managed by GSI Capital Advisors. While REIT does disclose 100% of its portfolio names daily, it doesn’t disclose the correct portfolio % weightings. That is how GSI’s daily alpha strategy is obscured. By keeping certain information about the ETF portfolio secret, this ETF does not allow other traders to predict or copy its investments strategy. This may improve the REIT’s performance.

Integral to the success of any new financial product is just how captive an audience that product is serving. Active non-transparent ETFs (ANTs) are capitalizing on attention from advisors, but that growth is in the early innings and could be spurred along by more education.

Mutual Funds Getting Into the REIT ETF Space

Mutual fund companies wanting to get into the ETF game now have the ability to offer their brand of active management in an ETF wrapper without having to lift up the hood every day to reveal the intricacies of their strategy.

Commercial, residential, rental income, flipping, and buy-and-hold are just some options that real estate investors can use to build their portfolios. The diversification vs. specialization dilemma also speaks to the benefits of getting active with REIT.

Additionally, the new ETF is a credible inflation hedge at just the right time. Increases in the cost of land, labor, and materials increase the cost of real estate development, which may constrain supply and enable landlords to increase rents. Many landlords issue leases with explicit ties to inflation. Unlike bond coupons, REIT dividends can grow over time.

Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).

For more on cornerstone strategies, visit our ETF Building Blocks Channel.

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.