REIT ETFs Could Still Hold Up in Rising Rate Environment

With interest rates set to rise, income investors are understandably concerned about the potentially negative effect of higher borrowing costs on their rate-sensitive assets, but real estate investment trusts and related exchange traded funds may be seen as an alternative income opportunity for yield-minded investors.

“As we continue to operate in a rising rate environment, investors are considering how to capitalize on these dynamics and generate meaningful returns. One way to do so is by utilizing REIT ETFs, which unlike other real assets provide long term fixed cash flow and the shorter duration end of the market provides lower volatility and lower sensitivity to rising rates,” Martin Kremenstein, Head of NuShares, Nuveen’s ETF business, said in a note.

Nuveen also has its own REITs-related ETF offering, the NuShares Short-Term REIT ETF (BATS: NURE), which which is comprised of real estate investment trusts that invest in residential or commercial real estate with a shorter-than-average lease duration than REITs investing in other sectors.

NURE provides “access to REITs with short-term lease agreements which may be less volatile and sensitive to interest-rate changes than longer-term REIT,” according to Nuveen.