This REIT REIT proves surprisingly resilient
As interest rates rise, the ALPS Active REIT ETF (NASDAQ: REIT) proves remarkably resistant in a difficult context.
The actively managed REIT, one of the newest additions to the crop of exchange-traded real estate funds, is up nearly 14% since its debut in March, confirming that real estate assets don’t always have to wane when Treasury yields do not cooperate.
What makes the REIT’s performance impressive is that the real estate industry is sensitive to fluctuations in Treasury yields. Remember the “taper tantrum” of 2013 when yields surged in May and real estate spent the last seven months of this year lagging behind the broader market.
Inflation helps REIT case
With the specter of inflation gaining more and more attention, so do alternatives to bonds and gold as inflation-fighting tools. To the benefit of REITs, durable assets – an asset class including real estate – are generating more buzz as a means of combating rising consumer prices.
“One of the reasons for their recent relatively stable performance could be explained by the cause of the rise in bond yields and the change in the weight structure of the listed real estate sector,” notes FTSE Russell. “Higher inflation expectations are particularly favorable for residential property prices. We recently noticed that residential is one of the best performing components of listed real estate.
For REITs, another benefit of rising inflation is that it plays into the pricing power of real estate companies. In other words, many commercial REITs incorporate rent increases into customer contracts and these increases occur regardless of the inflationary environment. When inflation hits, these increases benefit REITs and their investors.
Managed by GSI Capital Advisors, REIT focuses on allocations to the real estate sector and is a concentrated ETF in which the top 10 holdings will typically represent around 60% of the portfolio. The ALPS fund reports 2.15%.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.