Real Estate is Recovering, But Not in All Subsectors

The pandemic put the real estate sector in uncharted territory that put forth different challenges versus 2008’s financial crisis. While there are signs the sector is recovering, there are certain subsectors that faring better than others.

“The iShares U.S. Home Construction ETF (ITB), composed of major builders, home-improvement retailers, and other related stocks, surged 18% in May, compared with the S&P 500’s 4.5% monthly gain,” a Wall Street Journal report noted. “National homebuilders including PulteGroup Inc., Lennar Corp., and D.R. Horton Inc. were among the top gainers in the benchmark index for the month, all climbing more than 17%.”

“The outperformance of stocks in the residential real-estate industry marks a sharp turnaround from the steep selloff that many of the companies faced when the market plummeted this year,” added the report. “PulteGroup, for example, tumbled 62% from Feb. 19 through March 23, nearly doubling the loss of the S&P 500 and falling to a low not seen since 2016. In May, however, the home builder’s share price increased 20%, making it among the best performers in the S&P 500.”

One particular area that’s been hit by the pandemic is commercial real estate, particularly office buildings. With more remote work implementations going on amid social distancing, the demand for office space has been affected.

“Much is being written and speculated about the future use and need for office space as a result of the pandemic,” said Boston Properties’ chief executive, Owen Thomas. “Though no one, including myself, knows the answers to these longer-term questions, it is instructive to focus on what we know today: The biggest impact to the office market near term is a recession.”

A couple of other real estate ETFs to look at:

  • FlexShares Global Quality Real Estate Index Fund (GQRE): seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust Global Quality Real Estate IndexSM. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to quality, value, and momentum factors relative to the Northern Trust Global Real Estate Index.
  • FlexShares Real Assets Allocation Index Fund (ASET): seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.

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