How active management can conquer a lukewarm real estate market


The real estate sector suffered significant damage from the collapse of the coronavirus market in 2020. It has also been one of the best rebound stories, and that strength is visible this year as the S&P 500 real estate index is 14% higher.

However, some market watchers are lukewarm about the sector, signaling that gains from there may be limited. This may be the case with prosaic passive strategies, but active funds, whose ETF ALPS Active REIT (NASDAQ: REIT), can move quickly to allocate to segments of the real estate sector that offer higher upside potential.

REIT’s active style is relevant at a time when the outlook is bright for some segments of the real estate market and difficult for others.

“The COVID-19 pandemic continues to be a significant obstacle for the entire IPT industry. Demand for commercial goods remains well below pre-crisis levels as segments of the economy have not yet fully recovered, increasing the risk of rental defaults, especially for retail REITs and hoteliers, ”Schwab’s David Kastner said in a research report.

Uneven recovery for major real estate segments

The coronavirus pandemic has sparked seismic change in various industries, including real estate. For example, hotel REITs may rebound alongside travel demand, but office REITs may be vulnerable to long-term work-from-home trends.

“The outlook for office REITs is very uncertain and likely will remain so until we know if there will be a lasting shift to remote working,” Kastner said. “Although the industry’s net debt is low by historical standards, the risk to cash flow puts many REITs in a difficult position. And valuations have deteriorated.

Dark clouds for certain corners of the REIT universe highlight the usefulness of the ALPS fund in this environment.

“There are, however, a few exceptions. The demand for warehouses / distribution centers seems to exceed supply, resulting in a sharp increase in rents. And with home prices rising rapidly amid low rates and de-urbanization, REITs specializing in leasing single-family homes and manufactured homes stand to benefit, ”Kastner said.

REIT is a semi-transparent fund, which means its holdings are not disclosed on a daily basis.

Other REITs of REITs include the ETF Schwab US REIT (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).

To learn more about basic strategies, visit our ETF Building Blocks channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.

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