As the residential real estate market works itself out amid high interest rates, there are other investment opportunities that are worth noting like the actively managed (AVRE ).
Because of its active management strategy, AVRE’s portfolio managers can tilt towards other sub-sectors within real estate that are exhibiting strength. Right now, the residential market is plagued by high interest rates, pricing out prospective buyers.
“We’ve been bouncing around at a low level of sales all year," said Redfin chief economist Daryl Fairweather. "We thought rates would go down by now, but they haven’t. They’re still going up. So it’s hard to say how likely it is that rates will fall. We think they will fall, but we’ve been saying that, and it might get delayed another year. There’s no way of really knowing that.”
Real estate is currently facing headwinds. Still, AVRE maintains pliability in the current environment by concentrating on opportunities outside the residential market. With a net expense ratio of just 0.17%, it also provides a cost-effective solution for active real estate exposure.
Non-Residential Real Estate Focus
As of August 24, the largest holding in AVRE is real estate investment trust (REIT) company Prologis. Prologis primarily operates in the industrial real estate sphere. At almost 7% of the fund’s assets, Prologis invests primarily in logistics facilities. It recently raised its earnings outlook for the rest of the year despite a high-interest rate environment.
“Prologis has been flexing its strong balance sheet by expanding its sprawling worldwide network of distribution centers and storage sites in part through several big acquisitions,” the Wall Street Journal reported. “Prologis said last month it would buy a portfolio of U.S. industrial space totaling nearly 14 million square feet from Blackstone for $3.1 billion.”
The fund’s second largest holding at just over 5% of its assets is American Tower Corp. The company also isn’t focused on residential real estate, but is also a specialized REIT focusing on cell towers and data centers.
As the world becomes even more heavily reliant on mobile devices, building out the infrastructure to provide wireless services is essential. American Tower’s income is derived from leasing its portfolio of cell towers (which spans globally) to telecommunications companies.
“These are vital infrastructure assets that make using mobile phones possible for billions of people around the world,” a Motley Fool analysis explained. “On top of that, the REIT has layered a portfolio of data centers, which also supports all of the mobile computing taking place on smartphones. It’s a fairly strong combination of assets.”
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