Even as the global economy recovers, today’s markets remain characterized by stubbornly low yields. As a result, advisors must cast a wider net to meet their clients’ income needs. Short-term REITs can play a valuable role in meeting those needs, and also act as a powerful diversifier for clients’ income streams.
In the upcoming webcast, Why Short-Term REITs Make Sense Now, Alex Graf, ETF specialist, institutional and ESG models, Nuveen; and Michael Orzano, senior director of global equity indices, S&P Dow Jones Indices, will discuss a differentiated approach to REIT selection, identifying the benefits of short-term REITs to help financial advisors enhance client portfolios and better manage potential risks.
Specifically, the NuShares Short-Term REIT ETF (BATS: NURE) 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 focuses on REITs with short-term lease agreements, which may be less volatile and sensitive to interest-rate changes than longer-term REITs. These types of shorter-term REITs may be a good way for income-minded investors to access yield generation in a rising rate environment, as short-term contracts allow businesses to more quickly reprice and adapt to changing market environments. Due to the REITs’ structure that allows the majority of revenue to be distributed as income to shareholders, businesses’ prudent reactions could translate to higher returns for investors.
“Because short-term REITs can adjust pricing more frequently than longer-term REITs, they may adapt more quickly to changing market conditions and be less sensitive to interest rates,” according to Nuveen.
The underlying index concentrates holdings in apartment buildings, hotels, self-storage facilities, or manufactured home properties. The benchmark will also exclude mortgage REITs, hybrid REITs, certain other types of REITs, real estate finance companies, mortgage brokers and bankers, commercial home builders, large landowners and subdividers of unimproved land, and companies that have more than 25% of their assets in direct mortgage investments. Components are also weighted by float-adjusted market capitalization where no single REIT can make up more than 5% of the index as of any rebalance in March, June, September, or December.
Financial advisors who are interested in learning more about real estate investment trusts can register for the Monday, December 6 webcast here.