ETF investors who are interested in the real estate sector can consider a differentiated approach to Real Estate Investment Trust (REIT) selection, identifying the benefits of short-term REITs to help enhance their portfolios and better manage potential risks.
On the recent webcast, A Differentiated Approach to REIT Selection, Jordan Farris, Managing Director, Head of ETF Product Development, Nuveen, explained that REITs are companies that own or manage income-generating real estate assets. Without having to own the physical property, individual investors can also invest in publicly-traded REITS and earn the attractive dividend from these securities. Farris also highlighted the long-term benefits of short-term REITs, which can adjust pricing more frequently than longer-term REITs, may adapt more quickly to changing market conditions and can be less sensitive to movements in interest rates.
“As investors contemplate the implications of political and economic uncertainty on capital markets, it seems a pertinent time to readdress the rationale for real estate in multi-asset portfolios,” Farris said. “For investors reappraising risk and reward, real estate may fulfill a need for diversification, performance, and importantly yield in a world starved of income.”
Silvia Kitchener, Director, Global Equity Indices, S&P Dow Jones Indices, highlighted the Dow Jones U.S. Select REIT indexing methodology as a benchmark for investors to gauge the real estate market. She explained that the constituents of the Dow Jones U.S. Select REIT Index are classified into short-, medium-, and long-term buckets based on the typical average lease duration of the different REIT sectors.
Specifically, the short-term bucket includes REITs like apartments, hotels, manufactured homes and self-storage. The mid-term bucket covers industrial, mixed, industrial/office, strip centers, factory outlets and diversified REITs. Lastly, the long-term bucket holds health care, regional malls and office REITs.
Kitchener pointed out that these various REIT lease durations also exhibit varying degrees of