Tepid gains notched by the real estate sector are largely viewed as the result of tariff turbulence. But some market observers believe real estate investment trusts (REITs) could prove sturdy if trade tensions are renewed.
Should that outlook prove valid, funds such as the ALPS Active REIT ETF (REIT) could benefit. The fund is actively managed. That status could be advantageous for investors at a time when passive real estate strategies could be hamstrung by recession fears and weak credit markets, assuming trade turmoil again rears its head.
The preferred scenario is that the Trump administration eases its harsh trade rhetoric while working toward agreements with major trading partners such as China and the European Union (EU). Such moves could usher in a more sanguine environment, potentially boosting the allure of ETFs like REIT along the way.
Macro Stars Could Align for REIT
REITs, including those residing in the ALPS ETF, generate the bulk of their revenue in the U.S. Those companies aren’t tethered to trade-sensitive export stories. However, their domestic focus can be a source of weakness if market participants worry about economic contraction or lack of clarity regarding tariffs.
“If uncertainty continues to dissipate, a brighter CRE outlook is (still) believed to be on the horizon. Solid economic conditions and converging public-private real estate valuations remain two critical keys to unlocking the stifled property transaction market,” according to Nareit. “As transactions increase, REITs will likely maintain a competitive edge over many of their competitors in pursuing acquisitions and accretive growth.”
REIT’s sensitivity to trade headlines has been on display this year. The ETF performed decently in the first quarter, but tumbled following Liberation Day. As post-Liberation Day stress waned, the fund has clawed back some of its April losses. But it remains nearly 13% off its 52-week high. That indicates there could be more upside to be had if the macroeconomic climate cooperates.
Additionally, the recent broad-based rebound experienced by the real estate sector indicates it’s not a narrative-driven rally. That may mean the sector could stand tall if trade headlines take a turn for the worse.
“Despite abundant investor concerns, the net broad equity and REIT investment performance effects related to tariff actions have been considerably more tempered than many investors feared,” concluded Nareit. “Although further tariff actions may influence future investment performance, REITs are generally well-positioned to weather any potential fluctuations due to their solid property operations and strong balance sheets.”
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