Considering the Federal Reserve lowered interest rates in September, the rate-sensitive real estate sector has disappointed. Many of the marquee ETFs tracking the group have sported losses over the past 30 and 90 days.
Recent disappointment aside, investors shouldn’t be hasty regarding writing about real estate investment trusts (REITs) and related ETFs. With more rate cuts likely in the offing, pragmatism could be the order of the day with real estate stocks and ETFs. With that in mind, the ALPS Active REIT ETF (REIT) could be a real estate fund to consider.
As has been widely documented, REIT, which turns five years old in February, is actively managed. That’s a potentially advantageous status at a time when the Fed is expected to trim borrowing costs and as investors place greater emphasis on REITs with the sturdiest balance sheets. On a note related to active management, some real estate stocks beloved by analysts already line the roster of the ALPS ETF.
Some REIT Holdings Ready to Rebound
To be sure, some members of the REIT lineup have tried investors’ patience, confirming the benefits of ETFs over stock-picking. But the good news is some now have the look of value plays with credible rebound potential. Off nearly 51% over the past year, Americold Realty Trust (COLD) fits those bills.
“Much of the correction can be attributed to concerns related to a difficult outlook in the near term, as occupancy rates have fallen and rents are coming under increasing pressure,” noted Morningstar analyst Kevin Brown. “The pressure on the core rental segment fundamentals is both a function of moderating demand and incremental supply side additions in recent years. There are indications that speculative supply growth will be lower in the upcoming years, supporting occupancy recovery. We agree that the near-term outlook may be [difficult. But] the current valuation provides an attractive entry point for long-term oriented shareholders.”
Americold is one of three real estate names highlighted by Morningstar as top ideas in the sector. Another member of that trio — Federal Realty Investment Trust (FRT) — is another REIT holding. That stock is down 13.21% year-to-date. But it could bounce back as market participants awaken to opportunities with retail REITs.
“Federal Realty’s portfolio has the highest average population density and per capita income among all shopping center REITs,” added Brown. “The company’s strong internal and external growth prospects should also allow Federal to continue to support a high dividend yield. We believe the company has sold off due to 10% of rent coming from office tenants, but Federal’s high-quality portfolio should trade at a multiple premium to the industry and its shopping center peers.”
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