Inflation-fighting assets are taking center stage this year, and that includes real estate investment trusts and the related exchange traded funds.
That group includes the ALPS Active REIT ETF (NASDAQ: REIT). Despite its diminutive weight in the S&P 500, the real estate sector has long been a refuge for investors looking to buffer their portfolios against inflation. The actively managed REIT is living up to that billing this year.
The ALPS fund is topping the S&P 500 by about 830 basis points while outperforming the widely observed MSCI US Investable Market Real Estate 25/50 Index by 340 basis points. Some market observers see more upside for real estate equities, including REIT member firms.
“In a note, CFRA raised its recommended exposure to the sector to marketweight from underweight but did not name individual stocks in its ratings change. The sector includes real estate management and development services,” reports Business Insider.
As noted above, REITs are among the premier inflation-fighting assets and have track records of delivering for investors when the Consumer Price Index (CPI) rises. A lot that benefit is attributable to pricing power.
“US inflation in March accelerated to 8.5%, the fastest increase since December 1981, led by sharper prices for gas, shelter and food,” according to Business Insider. “REITs can benefit from price increases for rents and from higher real estate values during hotter inflationary periods.”
Inflation-fighting capabilities are nice, but so is income, which is another trait that real estate assets are prized for. That income can be sustained or increased thanks to pricing power.
“Yields on US Treasurys have climbed this year as investors price in expectations for the Federal Reserve to aggressively raise benchmark interest rates to tamp down on inflation. Shorter-dated bond yields, which are most sensitive to interest rate changes, have been rising above those on some longer-dated government bonds, indicating heightened worries about the economy,” notes Business Insider.
The aforementioned MSCI US Investable Market Real Estate 25/50 Index yields almost 2.2%. That’s well ahead of the dividend yield on the S&P 500. Due to its status as an actively managed ETF, REIT can unearth superior income opportunities and REITs with favorable funds from operation (FFO) traits.
Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
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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.