Real estate equities and the related exchange traded funds are contending with 2022 headwinds due to rising interest rates, but the silver lining in that scenario is the emergence of value opportunities among some of the sector’s higher-quality names.
That could be a boon for real estate ETFs such as the Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI). GREI is unique in this fund category in that it’s actively managed and isn’t solely dedicated to real estate stocks.
Both points are relevant in the current market environment. Focusing on GREI being actively managed, that allows the Goldman Sachs ETF to avoid real estate investment trusts (REITs) that are highly sensitive to rising interest rates while embracing those with superior long-term growth profiles. On a related note, some GREI member firms are popular among sell-side analysts.
Those include technology REITs such as Equinix (NASDAQ:EQIX) and Digital Realty Trust (NYSE:DLR), both of which are GREI holdings.
“Citi in a Sept. 9 report indicated it was overweight on data center REITs. It highlighted Equinix Reit and Digital Realty Trust as trusts to watch, saying that increasing interest in a ‘hybrid cloud’ infrastructure — a combination of both public and private clouds — should support continued IT outsourcing,” reported Weizhen Tan for CNBC.
Citi is also constructive on another pair of GREI components — cell tower REITs American Tower (NYSE:AMT) and SBA Communications (NASDAQ:SBAC). Those stocks combine for nearly 7% of the ETF’s portfolio.
“The bank said that the tower business model remains well positioned to grow from ongoing investments from mobile carriers,” according to CNBC.
Those examples underscore an important point about GREI: As an active ETF, GREI can and does offer exposure to REITs that are often overlooked by rivals in this fund category.
Additionally, active management allows GREI to be more responsive to compelling real estate themes than passively managed rivals. Take the case of healthcare REITs.
“Given demographic tailwinds, significant room for occupancy recovery to pre-Covid levels, emerging pricing power, and limited new supply, we think outperformance can continue,” according to Morgan Stanley. “As this population ages and sells homes to transition into senior housing facilities, the demand tailwind for senior housing during the rest of the decade may be the strongest we’ve ever seen.”
The bank highlighted GREI holding Welltower (NYSE:WELL) as an attractive healthcare REIT.
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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.