Related: The Case for Active Management in REITs
REITs provide diversification benefits as the asset shows a lower correlation to stocks and bonds. However, the asset category has recently experienced heightened volatility due to interest rate risks. Some investors fear REITs will act negatively in rising interest rate environment. The high dividends in REITs are attractive in a low-rate environment but are less enticing once safer Treasuries show higher rates.
“The growth case for REITs, including healthcare or office real estate, hinges on whether demand for new architecture will meet the currently rising costs of land and building materials. So far, price considerations have found parity with the clear growth signals in demand, but traders should look closely at monthly CPI and PPI releases for signs of growing price pressure,” according to Direxion.
For more information on real estate investment trusts, visit our REITs category.