At the onset of the coronavirus pandemic in the U.S., the real estate sector was drubbed in dramatic fashion. This year, it’s one of the most impressive redemption stories, as highlighted by the FlexShares Global Quality Real Estate Index Fund (GQRE).
The FlexShares fund is higher by nearly 13%, an undoubtedly impressive showing against the backdrop of rising Treasury yields. The asset’s global approach also has merit, given real estate’s international implications, which are levered to recovery scenarios around the world.
“Global travel restrictions and consumers canceling vacation plans have caused massive occupancy declines for the hotel industry,” notes Morningstar analyst Kevin Brown. “Malls across the country were closed for several months, and many retailers are struggling as consumers have shifted many of their shopping habits online. And though the industrial and self-storage sectors declined initially, they have outperformed the broader real estate sector since the start of 2020. These sectors are outperforming, as they should be relatively insulated from the worst effects of the virus on the global economy.”
The GQRE Structure
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.
Importantly, GQRE offers some exposure to some previously moribund real estate segments that are now rebounding.
“However, after the announcement of a successful development of a coronavirus vaccine in early November, the hotel and retail sectors have massively outperformed the broader real estate market,” adds Brown. “The vaccine allows travelers to return to hotels and shoppers to return to stores, significantly reducing the risk of bankruptcy for these companies and making the path to recovery clearer.”
The $365 million GQRE holds 201 real estate stocks and has a trailing 12-month dividend yield of 1.81%. More than 82% of its holdings are either large- or mid-cap stocks.
More than 40% of its holdings hail from international developed markets, an asset class with higher dividend yields and more attractive valuations than those that are currently offered for U.S. equities, real estate sector or otherwise.
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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.