U.S. real estate seems to be in a perpetual climb, and as it rockets higher, ETF investors can look to other parts of the globe with funds like the FlexShares Global Quality Real Estate Index Fund (GQRE).
Per a Bloomberg report, “Blackstone Group Inc. President Jon Gray has some advice for investors looking to make sense of the wild real estate market in the U.S: Don’t fear a bust anytime soon.”
“Home prices have surged the most since 2005, cheap mortgages are encouraging buyers toward new homes, and building costs are spiking because of rising prices for raw materials,” the report said further. “At the same time, a worker shortage means new construction is failing to keep up with soaring demand. And in commercial real estate, the wider acceptance of remote work during the Covid-19 pandemic is threatening to decimate office properties.”
Per the fund description, 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 Index. 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.
“Investing in the real estate sector offers the potential to add growth, diversification, income along with potential protection against the risk of long-term inflation to a portfolio,” a FlexShares Fund Focus article said. “We believe that a well-diversified and global approach to real estate investing is a key factor in unlocking the full range of these potential benefits.”
Real Estate as an Inflation Hedge
With the capital markets expecting rates to rise, real estate can as an ideal inflation hedge. As compared to bonds, real estate dividend yields can provide a higher rate of return historically.
“Our research suggests that real estate equities have been used traditionally as a potential hedge against long-term inflation, as some types of real estate stocks have been shown to be less resistant to rising interest rates,” FlexShares said. “Historically, our opinion is that real estate investments also have paid higher dividend yields than other equity classes, offering an alternative source of potential income.”
“Finally, we believe that real estate historically has had a low correlation to both fixed income and other equity asset classes,” FlexShares added. “As a result, real estate may add further diversification to an already well-diversified portfolio.”
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