Last week, U.S. stocks were thrashed as the White House unleashed reciprocal trade tariffs against an array of countries. Investors are scrambling to identify shelter from the storm assets with decent-by-comparison volatility traits. Real estate investment trusts (REITs) might check that box. Indeed, ETFs like the ALPS Active REIT ETF (REIT ) slipped last week.
But many, including REIT, performed less poorly than the S&P 500. Part of the reason for the relative durability offered by real estate equities is that market participants who dumped stocks used the proceeds to buy bonds, sending Treasury yields lower. That’s a boon for notoriously rate-sensitive real estate names.
“We believe expectations for slower GDP growth and lower rates as a result of increased tariffs actually places REITs in a relatively better position than the overall [market. That] explains this week’s outperformance by the RMZ,” noted Deutsche Bank analyst Omotayo Okusanya. “That said, outperformance likely takes the form of the RMZ index still down (albeit less than the overall market) with economically sensitive REIT sectors like Hotels and Office likely to underperform.”
Addition by Subtraction
REIT’s status as an actively managed ETF could prove appealing in the current market setting. That’s because it can more nimbly avoid some of the trouble spots in the broader REIT sector. Those spots include cannabis and hotel REITs. The ALPS ETF has no cannabis exposure and only modest holdings in hotel property owners.
“Underperforming sectors were Cannabis (-17.2%), Hotels (-9.5%), and Office (-8.0%). The economic cyclicality of Hotels and Office drove underperformance of these two sectors. Cannabis was weighted down by IIPR (-19.5%) after the company disclosed that several major tenants have defaulted on rent payments,” added Okusanya.
Conversely, the ALPS ETF has a decent amount of exposure to some of the real estate subgroups that proved sturdy to conclude the first quarter, including gaming and healthcare.
“Telecommunications, gaming, and health care led at the property sector level in March, while single family homes and free standing retail were both positive at the subsector level,” according to Nareit.
Specific to casino landlords, there are just two publicly traded names in that space. One of the two — VICI Properties (VICI) — is REIT’s fourth-largest holding. That’s relevant to investors considering REIT because the Caesars Palace owner is proving remarkably durable to start 2025. While broader equity gauges are flailing, VICI is higher by 4.72% since the start of the year. And that’s when accounting for a 4.44% drop last week.
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