Avantis Real Estate ETF

AVRE

Market cap $653M

Is now a good time for traders and advisors to consider amplifying their real estate exposure? There are a few crucial factors that may support doing so.

REIT ETFs like DFAR and AVRE offer diversification, reducing concentration risk compared to single REIT investments, with specialized management enhancing performance. AVRE's international exposure, including holdings in Goodman Group and SEGRO Plc, introduces currency risk, particularly with a strong dollar impacting performance. AVRE's underperformance relative to DFAR is attributed to macroeconomic factors, including the strong dollar and differing domestic vs. international real estate trends.

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The first rate cuts have come and gone, improving the prospect of a so-called “soft landing” for the U.S. economy. Of course, cheaper borrowing doesn't just benefit consumption, it also benefits certain economic segments disproportionately.

I rate the fund a Hold based on its average performance and low prospects of capturing tactical opportunities in global real estate. Within a traditional portfolio, the fund does provide diversification with opportunity for capital appreciation and income. Performance is similar to the S&P Global Real Estate Index, but the fund isn't that diversified globally.

REITs have historically tended to outperform in the 12 months following the end of a rate hiking cycle by the Fed, making now an interesting time to consider REIT ETFs. REIT ETFs allow investors to gain exposure to the real estate market with a tax- and cost-efficient, highly liquid vehicle.

The big market sell-off dominated headlines over the weekend and into the start of the week. Whether sparked by the Bank of Japan raising rates, causing carry trades to unwind, or from unemployment numbers, investors are seeing crowded trades into huge names take a hit.

Real estate stocks have taken a hefty beating this year, with REITs having the sole distinction of being the lone S&P 500 group in the red for much of 2024 and only just turning positive last week.

The residential real estate market will continue to be at the mercy of interest rate policy throughout 2024, but there are other corners of the real estate market to consider. One active exchange traded fund, in particular, takes a different approach to real estate.

Active REIT ETFs are a strong choice for 2024 as they can potentially offer uncorrelated returns to portfolios. REIT ETFs allow investors to gain exposure to the real estate market via a tax- and cost-efficient, highly liquid vehicle.