The real estate sector is often viewed as a defensive destination, a reputation being belied as the coronavirus pandemic forces closures of casinos, malls, and non-essential retail stores. Amid trying circumstances, real estate ETFs, including the FlexShares Global Quality Real Estate Index Fund (NYSEArca: GQRE), are languishing.
However, GQRE is performing noticeably less poorly than some traditional rivals in the category and that could be a sign of leadership when the sector rebounds.
GQRE targets the Northern Trust Global Quality Real Estate Index, a fundamentally-weighted index that focuses on commercial and residential REITs. Mortgage REITs, real estate finance companies, mortgage brokers and bankers, commercial and residential real estate brokers, and real estate agents and home builders are among the securities excluded from the index.
“Cyclical sectors such as hotels and malls took the brunt of the impact due to their direct dependence on consumer spending. The substantially weakened demand for travel, dining out, lodging and shopping resulted in hotel and retail REITs suffering more than a 50% loss MTD through March 20, 2020, compared with -21.9% and -33.5% from the S&P 500 and Dow Jones U.S. Select REIT Index, respectively,” said S&P Dow Jones Indices in a recent note.
GQRE is outperforming the Dow Jones U.S. Select REIT Index by about 300 basis points.
Exposing Global Perks
Another plus for GQRE is its global exposure, which levers the fund to easy monetary policy by central banks beyond the Federal Reserve.
GQRE also features significant ex-US exposure, a trait that should serve the fund as a slew of central banks besides the Federal Reserve consider lowering interest rates. While REITs are trading at the higher end of historical valuation ranges, the group is generating robust cash to support dividend hikes.
The $295.44 million GQRE, which has a trailing 12-month yield of 5.73%, has solid exposure to some of the steadier corners of the REIT space, including industrial and self-storage REITs.
“Thanks to the rapid growth of e-commerce due to online shopping, industrial REITs outperformed the market by 4.1%,” according to S&P Dow Jones. “Self-storage REITs also benefited from the rising demand resulting from the sudden country-wide college closures. The self-storage sector held relatively better at a -20.7% return, outperforming overall REITs and equity markets.”
The fund’s exposure to those industries outweighs its exposure to suddenly imperiled hotel REITs, which have been bludgeoned by the coronavirus outbreak.
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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.