As measured by the S&P Select Sector Real Estate Index, real estate stocks are struggling this year, as that gauge is lower by 3.47%. However, some market observers remain constructive about real estate stocks. This indicates there could be opportunities in the space for selective investors.
That selectivity can be realized with the ALPS Active REIT ETF (REIT). The exchange traded fund provide exposure to eight real estate subindustry groups. That diversification could prove advantageous should real estate investment trusts (REITs) rebound.
Much of the thesis for the broader real estate sector revolves around the Federal Reserve obliging with lower interest rates and inflation continuing to cool. But there are no guarantees those scenarios will materialize. The lack of such promises could highlight advantages with REIT, including the ETF’s status as an actively managed fund.
REIT Holdings Matter
REIT isn’t a carbon copy of index-based rivals. And that’s a good thing, because the ETF’s managers can potentially identify industry-level and value opportunities. Take the case of Realty Income (O), which accounts for 5.33% of the fund’s roster.
Realty Income “is part of the S&P 500 Dividend Aristocrat index and has raised its dividend payout for 25 consecutive years. The REIT has a 5-year average dividend yield of 4.5% and is trading at around a 10% discount to net asset value — a key measure of a REIT’s value — according to FactSet data,” reported Amala Balakrishner for CNBC.
Realty has recently diversified its tenant base by moving into the casino real estate space. That’s pertinent because gaming tenants are among the steadiest lease payers and among the least likely to default on rent obligations.
Some analysts are bullish on data center REITs, including Equinix (EQIX) and Prologis (PLD). Those two stocks combine for over 15% of REIT’s roster.
“Prologis — which owns almost 800 properties globally, including a number of data centers — is trading at a premium of around 4% to net asset value. Equinix, with 250 data centers, is trading at a premium of around 17% according to FactSet data,” noted CNBC.
Another real estate segment that could support demographic-driven gains for REIT is senior housing. That is one of the more deeply discount subgroups in the sector. Ventas (VTR), which accounts for 4.20% of the REIT roster, is one the cheaper names in this corner of the real estate sector.
“Ventas is trading at discount of around 3% to its net asset value,” reported CNBC, citing FactSet data.
For more news, information, and analysis, visit the ETF Building Blocks Channel.
