Real estate investment trusts (REITs) and related ETFs are living up to their defensive billing in the first quarter. That’s because a broad swath of the category’s passive ETFs are outpacing the S&P 500 to start the year.
That could signal opportunity with actively managed fare like the ALPS Active REIT ETF (REIT ). To its credit, the ETF is in the green in the first quarter while the S&P 500 is saddled with a year-to-date loss. That’s not solely the result of investors embracing defensive sectors. REIT is supported by a stout fundamental case. That includes the sector’s strong occupancy rates as well a favorable maturity window.
As of the end of 2024, “leverage ratios remained low with debt-to-market assets at 32.4%,” according to Nareit. “More than 60% of REITs reported year-over-year increases in Funds From Operations (FFO), with FFO increasing 11.4% from one year ago. Occupancy stayed steady at 93.3%.”
That FFO reading is encouraging in terms of supporting dividends — one of the primary reasons investors buy real estate stocks. It is backed by a 5.5% YoY gain in net operating income.
Other Signs REIT Could Thrive
As an actively managed ETF, REIT could have tailwinds over the course of this year. That’s because it can more rapidly alter its portfolio to tap into emerging real estate opportunities. That’s exactly what some active real estate managers are doing.
“Telecommunications and data centers were the most overweight sectors relative to their index weights, invested at 123% and 120% of their index shares, respectively,” noted Nicole Funari of Nareit. “Health care jumped to the second highest absolute allocation in the fourth quarter, reflecting the largest year-over-year increase among the sectors. Industrial and retail were both down for the year and underweight their index shares by 88% and 86%, respectively.”
REIT has long had data center and healthcare REIT exposure, positioning the ETF to potentially capitalize on two of the sector’s most discussed long-term themes. Nareit data also indicates modest increases among active managers’ allocations to lodging and office REITs. Those are two subgroups to which the ALPS ETF also has exposure.
“A year of steady quarterly gains in the office sector resulted in a significant increase in annual gain, up 0.6 percentage points in the fourth quarter,” according to the research firm. “Lodging/resorts also saw a turnaround, up 0.3 percentage points for the quarter and year.”
For more news, information, and analysis, visit the ETF Building Blocks Channel.
