Beyond the REIT Headlines: The Case for an Active REIT ETF

Is now the time to get back into REITs? Media headlines may have previously dissuaded investors from real estate, but the landscape is changing. A recent webcast sponsored by SS&C ALPS Advisors, “Listed REITs: Advantaged Players in Today’s Property Markets” looked beyond the headlines to examine the case for an active REIT ETF.

See more: REIT Leaders Might Reside in This ETF

Hosted by VettaFi Editor-in-Chief Lara Crigger, the webcast included SS&C ALPS Advisors’ Senior Investment Specialist Karl Zeller and boutique firm GSI Capital Advisors’ CIO Nick Tannura and CEO Craig Leupold. The panel explored the fundamentals behind the appeal of REITs’ past headlines. They also discussed the case for the ALPS Active REIT ETF (REIT).

The Case for an Active Real Estate ETF

While headlines about the downfall of office real estate due to remote work have dominated the narrative, they don’t necessarily impact REITs as much. The office sector comprises just about 5% of the REIT market, according to Leupold.

“Niche or emerging sectors like data centers, storage, single-family rental housing comprise the majority of the market, and in many of those sectors, fundamentals are quite healthy,” Leupold said, adding that interest in AI, for example, is driving data center interest.

At the same time, he added, REITS have strong balance sheets. They’re also operating at less than 33% leverage compared to 50% in private market real estate. At the same time, REITs have just about 15% of debt maturing this year, limiting exposure to new high rate debt.

That speaks to one strong factor for REITs and real estate in the form of potential rate cuts, too. Per Tannura, REITs tend to do well as rates start to come down. Over the last four tightening cycles, REITs returned 21% in the 12 months after the rate peak compared to private market real estate returning about 10%, he explained.

“After these correction periods in the REIT market, it tends to be a really good entry point,” Tannura noted.

So why should investors consider adding REITs to their portfolios? According to Zeller, REITs offer a strong combination of returns as well as stable and high dividends.

“REITs can help investors diversify portfolios, as they have low historical correlation to other asset classes,” he added.

ETFs, Zeller said, provide a strong option for exposure to REITs. Leupold noted that investors may want to have about 8%-10% of their portfolio allocated to REITs.

An active REIT ETF like REIT, then, may appeal to investors as a strong option. The strategy charges 68 basis points and hit its three-year ETF milestone last month. The strategy, bringing together GSI Capital Advisors’ boutique skills and SS&C ALPS Advisors’ ETF prowess, has returned 13.6% over one year. That has outperformed both its ETF Database Category and FactSet Segment averages.

Looking ahead, the active REIT ETF may provide one strong diversifier and source of performance for investors. For those looking for more beyond the real estate headlines, sign up to watch the webcast here.