Advisors and investors looking for opportunities in a declining rate environment would do well to consider real estate. Beyond just residential mortgages, commercial real estate stands to benefit from rate cuts as well. It makes actively managed funds like the Fidelity Real Estate Investment ETF (FPRO) worth consideration.
Rising and elevated rates resulted in 30-year mortgage rates above 7% for much of 2024. High rates in the last two years also squeezed the commercial real estate sector. Commercial real estate transactions fell 60% in 2023 compared to 2021 levels, according to Lawrence Yun, Chief Economist of the National Association of REALTORS.
Declining rates may prove a boon for commercial real estate, giving the industry the chance to recover. This recovery would likely result in greater price stability, lease activity, and transactions according to Yun. It also creates an opportunity for investors looking to capture recovery in a declining rate environment.
The Fidelity Real Estate Investment ETF (FPRO) seeks elevated income as well as long-term capital growth. It does so while balancing for reasonable investment risk. FPRO is actively managed and invests in companies primarily within the real estate industry as well as other real estate-related investments. It invests in both domestic and foreign issuers.
Data as of 08/31/24
The management team utilizes fundamental analysis when selecting securities. This includes reviewing an issuer’s financial condition, industry position, and broader economic and market conditions. FPRO offers diversified exposure to a range of real estate sub-industries, including industrial REITs, multi-family residential REITs, data center REITs, health care REITs, and more.
The fund is semi-transparent, meaning it does not share its actual holdings with the public. Instead, FPRO only shares a tracking basket with the public. This basket holds some of the same securities as the fund but is not FPRO’s actual portfolio.
FPRO outperformed the MSCI U.S. IMI Real Estate 25/50 Index in the last year, as well as over the life of the fund. The index tracks large-, mid-, and small-cap real estate companies. FPRO generated total returns of 10.47% over the last year as of 07/31/24 compared to MSCI US IMI RE 25/50’s 9.45% gains, according to the issuer’s website. Since its inception in February 2021, FPRO generated a total return of 5.94% as of 07/31/24. Over the same period, the index’s total returns amounted to 3.77%.
FPRO has a management fee of 0.59%.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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