Real estate investment trusts (REITs) and the related exchange traded funds are being bid higher this year as some investors lean toward defensive, income-generating sectors. One of this year’s leaders among REIT ETFs is the NuShares Short-Term REIT ETF (CBOE: NURE).
NURE is higher by almost 15% year-to-date and has recently been hitting a series of record highs. The REIT ETF, which debuted in late 2016, tries to reflect the performance of the Dow Jones U.S. Select Short-Term REIT Index, 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’s underlying index includes “REITs that concentrate their holdings in apartment buildings, hotels, self-storage facilities and manufactured home properties, which typically have shorter lease durations than REITs that invest in other sectors,” according to Nuveen.
NURE and other REIT ETFs are benefiting this year from expectations that the Federal Reserve is unlikely to raise interest rates in 2019. Some bond market observers even believe an interest rate cut is possible late in the year.
While rising interest rates diminish the advantage of REIT dividend payouts, shares of property owners strengthened in the past two months. Some traders pointed out that U.S. government bonds are close to yield-curve inversion – a phenomenon where shorter-dated bonds yield more than later-dated debt, which typically preceded recessions, and trade tensions between the U.S. and China continued to weigh on global growth. These types of conditions would typically support defensive plays like REITs.
