Cyclical stocks are rebounding and the value factor is perking up, setting the stage for an earnest real estate asset rally. The FlexShares Global Quality Real Estate Index Fund (GQRE) is all ears.
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.
Though real estate investment trusts (REITs) scuffled earlier this year, the asset class offers compelling long-term returns, above-average yields, and reduced correlations to traditional asset classes.
“From an academic theory perspective, having low correlations between asset classes in a portfolio will reduce overall volatility. Most people are primarily concerned about volatility in the down direction, so let us look at how REITs correlate with the S&P when the broad market is down,” according to Seeking Alpha.
Real Estate Optimism and the GQRE ETF in 2021
Right now, real estate is undergoing a bit of a shift due to the Covid-19 pandemic. With more companies settling into the work-from-home dynamic, less office real estate space is needed and more homeowners are increasing their home office space.
Fixed income investors know that yield is hard to come across these days—unless investors are willing to take on more risk by accepting more duration in safe haven government debt, opting for high yield, or looking at opportunities overseas, to name a few. GQRE offers an alternative to those prosaic income-generating assets.
The real estate sector is lagging behind the broader market, but that means compelling discounts are currently available, including among office REITs, a segment featured in GQRE.
Another plus for GQRE is its global exposure, which levers the fund to easy monetary policy from 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 are considering 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.
GQRE’s status as a global fund is important amid the expectation that ex-US stocks will rally in 2021.
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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.