ALPS Active REIT ETF

REIT

Market cap $45.1M

Year-to-date returns across the REIT market varied remarkably, with large gains from non-U.S. REITs and U.S. healthcare REITs, while U.S. residential and data center sectors were notable laggards. In the last three years, there have been two major forces impacting the performance of equity markets and real estate. Today's public REIT market looks a lot different than what most investors expect. Sectors previously considered niche have grown to be essential in today's economy and society.

Advisors and income investors have long leaned into passive strategies when it comes to accessing listed real estate investment trusts (REITs). But this is a space where active management can be advantageous over the long haul.

As measured by the largest ETF dedicated to the sector, real estate stocks are offering middling performances this year. That is disappointing considering the Fed has pared interest rates two times.

In addition to high levels of income, investors often target the real estate sector for predictability and steadiness. Those are sensible approaches when considering real estate investment trusts (REITs) often ink long-term contracts with tenants featuring inflation escalators.

Real estate earnings season kicks into gear this week, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. One step forward, one back: Matching the stubborn performance pattern seen last year, REITs rallied ahead of the Fed's September rate cut but stumbled into the start of earnings season. In this report, we focus specifically on property-level fundamentals, previewing and forecasting REIT earnings performance based on an analysis of recent indicators across various sources.

Considering the Federal Reserve lowered interest rates in September, the rate-sensitive real estate sector has disappointed. Many of the marquee ETFs tracking the group have sported losses over the past 30 and 90 days.

For nearly five decades, US REITs have delivered stronger returns than broad US stocks in the 12 months following Federal Reserve easing cycles. Rate cuts may increase the attractiveness of REIT dividends, potentially making them a compelling option for investors seeking yield potential and portfolio diversification. Data centers, telecom infrastructure, and health care REITs have historically benefited the most from lower rates due to long-duration leases and capital-intensive models.

REITs and the related ETFs haven't done much following the Federal Reserve's interest rate cut, indicating that was largely priced into the rate-sensitive sector. More rate cuts could be on the way.

REITs performed very well in August (+5.48%), almost pulling the REIT sector's year-to-date total return back into the black (-1.11%). Small cap (+7.52%) and mid cap REITs (+7.13%) averaged strong gains in August while large caps (+3.16%) and micro caps (+0.87%) averaged more modest returns. 83.87% of REIT securities had a positive total return in August.

Real estate is one of the smallest sector weights in the S&P 500. That status belies the fact that the sector is home to an array of subgroups.