High interest rates are keeping the residential real estate market in flux. This is due to borrowing costs making prospective buyers and even sellers think twice. However, the murky waters of real estate investments in the current economic times can be made easier to navigate with an ETF like the ALPS Active REIT ETF (REIT).
As its name explicitly states, REIT invests in real estate investment trusts. This allow for dividends to be derived from the fund. This gives an income component to REIT, with its current indicated yield of 4.07% (as of October 18) and a 30-day SEC yield of 3.14% (as of September 30).
Additionally, as its fund description also states, the fund is actively managed. This allows for pliability in the real estate market. That is almost imperative given the amount of market uncertainty amid high interest rates.
The fund can be flexible in the market because of its active management. As such, the fund can tilt toward specific companies that are able to provide profitable opportunities in niche corners of the real estate market.
Thriving in an Uncertain Real Estate Market
Two companies able to capitalize on these niches include Equinix and Simon Property Group. Both firms are the top two holdings in REIT currently.
As the world becomes more data-driven and internet-reliant, Equinix focuses on this specific aspect of real estate. In this case, digital infrastructure.
“The need for data center infrastructure has stayed strong due to the expansion of cloud computing, the Internet of Things and Big Data,” Yahoo Finance noted. “Additionally, there is increased demand for third-party IT infrastructure. Furthermore, the rise of AI, autonomous vehicles and virtual/augmented reality markets has established a sturdy foundation for data centers.”
Focusing on Expansion
Equinix has been focusing on the expansion of data center capacity in key markets and strengthening its competitive positioning and global reach. In August, the company announced its fourth IBX data center in Mumbai with an investment of $42 million. The move aims to tap India’s the growing digital market.
The second largest holding of REIT, Simon Property Group, also focuses on a niche corner of real estate. In this case, it’s the commercial property in the retail sector. As the world returns to its pre-pandemic state, more consumers are flocking to brick-and-mortar retail stores again. This is translating to higher occupancy rates.
“Simon Property Group has been supported by strong consumer spending and a robust labor market,” Motley Fool reported. “Occupancy continues to improve, rising to 94.7% at the end of the second quarter, an increase of 80 basis points on a year-over-year basis. Simon is close to recouping its pre-pandemic occupancy of 95.1%. Base minimum rent hit a record in the second quarter, rising 3.1% year over year to $56.27 per square foot.”
With their specific focus on various corners of the real estate market, both companies should help buoy REIT until interest rates drop, whenever that may be.
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