Unbeknownst to many new and novice investors, the real estate sector sits at the center of multiple vital disruptive growth themes.
That is to say that today’s real estate sector isn’t the one your parents and grandparents remember. As such, investors should be deploying fresher, more relevant approaches to the group, but not all exchange traded funds answer that call. The Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI) does.
While GREI is among the newest real estate ETFs on the market today — it debuted last November — age is nothing but a number. In fact, GREI’s youth is advantageous in an ETF segment in desperate need of some youthful rejuvenation.
“Structural changes are leading to shifts in demand for different types of real estate, putting a premium on assets with inelastic demand,” said Nora Creedon, Goldman Sachs portfolio manager and client strategist. “In a quickly changing macro environment, real estate investors need to focus on diversification and understanding a portfolio’s underlying drivers of return and sources of risk.”
(Creedon is not the portfolio manager of GREI. The portfolio managers of GREI are Kristin Kuney and Abhinav Zutshi.)
Of course, GREI is also relevant today because, owing to superior pricing power, real estate has one of the top inflation-fighting reputations among all sectors. Additionally, it’s considered a defensive group, indicating that it could provide investors with some protection against a recession.
“Three key questions are forming ‘the new IRRs of real estate’: how will higher inflation impact different sectors of real estate, what happens as interest rates rise, and how will real estate perform in a recession?” noted Goldman Sachs Asset Management (GSAM).
Displaying the benefits of active management, GREI is outperforming the largest passive ETF in this category by 80 basis points on a year-to-date basis. That’s one sign that the combination of active management and a focus on the future is potentially advantageous in the real estate sector.
That combination is something for investors to consider over the near term because real estate investing is evolving, and the days of set-it-and-forget-it investing in the group may be numbered.
“We believe a new investment regime for real estate has begun,” added Creedon. “The rising-tide-for-all environment seems to have ended, likely to be followed by a period of more uncertainty and dispersion. Real estate returns over the next decade will likely become more dispersed, which should also offer more alpha opportunities globally.”
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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.