Likely helped by intensifying speculation that the Federal Reserve will lower interest rates this month, real estate investments (REITs) and related ETFs have been impressive performers of late. For example, the largest ETF in the category is up more than 5% over the past month.
The same is true of the ALPS Active REIT ETF (REIT ). Alone, that could signal investors are revisiting listed real estate assets in advance of rate cuts, but REITs’ recent strength is impressive because real estate equities have rough September track records. Of course, seasonality doesn’t carry the day and would certainly be trumped by a more accommodative posture from the Fed. Some analysts believe REIT seasonality means less there. And that could be a positive for ETFs such as REIT.
“We think the macro setup and other REIT-specific factors could combine to buck this trend,” wrote Wedbush analyst Richard Anderson in a recent report to clients.
REIT ETF Could Rev Up
There’s no denying that real estate equities are rate-sensitive. That’s the case for various high-dividend sectors. And real estate certainly is one. Lower yields on Treasurys have the potential to enhance the allure of real estate stocks and ETFs such as REIT.
Said another way, the more rates decline, the more REIT could benefit. That also highlights the perks associated with active management. As an actively managed ETF, REIT has the potential to react more swiftly to an increasingly favorable interest rate environment than a passively managed rival — something to consider over the near term.
“Among the positive factors, market pricing implies an expectation that the Federal Reserve will cut overnight interest rates by a full percentage point by the end of the year,” reported Tomi Kilgore for MarketWatch.
Speaking of dividends, casino landlord VICI Properties (VICI), REIT’s third-largest holding, said Thursday it is raising its quarterly dividend by 4.2%. That’s just one example, but it could be a sign that real estate companies are growing comfortable with the notion that rates will soon decline and that the U.S. economy is likely to avoid a recession.
“And while there has been growing worry that an economic recession was looming, [Wedbush] said that with unemployment still better than what is assumed to be full employment, [coupled] with healthy aggregate corporate balance sheets and liquidity in the marketplace, ‘we do not see the precursors for an imminent recession,’ which would be a big tailwind for the sector," according to MarketWatch.
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