Like it or not, inflation is here, and as transitory as it may be, advisors and investors are preparing for the worst. One inflation-advantaged asset class are real estate investment trusts (REITs).
Better still could be the idea of embracing the real estate segment with active management via the ALPS Active REIT ETF (NASDAQ: REIT). As an active fund, REIT can potentially offer superior inflation-fighting qualities with the possibility of more income than traditional index-based real estate funds.
Although REIT is just a few months old – it launched in March – the fund is up an impressive 16%. Combine that with its ability to protect portfolios from the ravages of inflation and it can be said that the fund is a prime example of a well-timed new ETF.
“Historically, when inflation has risen, stocks and real estate have tended to fare relatively well compared with bonds,” according to Fidelity research. “While past performance offers no guarantees about what may happen in the future, the track record of both stocks and real estate may make this a good time to find out more about REITs, which are companies that own, operate, or finance income-generating real estate including offices, apartments, shopping centers, hotels, and more.”
The Right Time for REIT?
When inflation perks up, REITs offer investors an alluring combination of inflation hedging, above-average income, pricing power, and the potential for capital appreciation.
Active management is also an important trait regardless of the inflationary setting because not all real estate stocks perform in lockstep with each other. Said another way, the sector is like any other in that there are times when some industry groups are leading while others are lagging. Active funds can avoid the laggards or sell out of them quickly.
“While REITs overall may be attractive, though, would-be investors need to understand that not every REIT is equally attractive. REITs typically specialize in certain types of properties such as retail or apartment buildings and COVID-19 has accelerated trends that are transforming real estate markets, benefiting some types of properties and disfavoring others,” adds Fidelity.
The communications, data center, and industrial REIT segments are looking particularly attractive at present.
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.