Is Real Estate the REIT Solution for Inflation?
Like it or not, inflation is here, and temporary as it is, advisors and investors are preparing for the worst. Real Estate Investment Trusts (REITs) are an asset class that is favored for inflation.
The idea of occupying the real estate segment with active management via the ALPS Active REIT ETF (NASDAQ: REIT) could be even better. As an active fund, REIT can offer potentially superior anti-inflation qualities with the potential for higher returns than traditional index-based real estate funds.
Although the REIT is only a few months old – it was launched in March – the fund is up an impressive 16%. Combine that with its ability to protect portfolios from the ravages of inflation and the fund can be said to be a prime example of a timed new ETF.
“Historically, stocks and real estate have performed relatively well when inflation has risen compared to bonds,” said Fidelity Research. “While past performance offers no guarantees of what might happen in the future, the track record of both stocks and real estate could make this a good time to learn more about REITs including real estate including offices, apartments, malls, Hotels and more. “
The right time for REITs?
When inflation rises, REITs offer investors an enticing combination of inflation hedge, above-average income, pricing power, and the potential for capital appreciation.
Active management is an important feature regardless of inflationary conditions, as not all real estate stocks perform in lockstep. In other words, the sector is like any other in that there are times when some industry groups are in the lead while others lag behind. Active funds can avoid the laggards or sell out quickly.
“While REITs can be attractive overall, potential investors need to understand that not every REIT is equally attractive. REITs tend to specialize in certain types of real estate, such as retail or apartment buildings, and COVID-19 has accelerated trends that are transforming real estate markets, utilizing some types of real estate, and penalizing others, “adds Fidelity.
The communication, data center and industrial REIT segments currently appear particularly attractive.
Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
For more information on cornerstone strategies, check out our ETF Building Blocks Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon and cannot actually occur. The information on this website is not to be used or construed as an offer to sell, solicitation to buy, or recommendation of any product.