After years of being overshadowed by the likes of Apple and Alphabet, real estate funds have lately edged ahead of the overall stock market by betting mainly on old-fashioned assets like office buildings, malls and warehouses.
In the fourth quarter, when the stock market really started to jitter and slide, the S&P 500 sank 13.52 percent, including dividends, but the FTSE Nareit All Equity R.E.I.T.s Index, a leading index composed of publicly traded real estate investment trusts, lost only 6.1 percent. For all of 2018, as the S&P 500 lost 4.4 percent, including dividends, the FTSE Nareit index lost only 4 percent.
So it goes for this stalwart, if stodgy, sector: Real estate can often chug along when other sectors start to sputter. For that reason, a real estate mutual fund or exchange-traded fund may help buffer an otherwise diversified portfolio from some of the stock market’s swings. In addition, it’s an entree to investing in commercial real estate for someone who can’t afford the Empire State Building (which is owned by a R.E.I.T. named Empire State Realty Trust).
R.E.I.T.s are property owners whose shares trade on stock exchanges. They can own a variety of real estate, ranging from the obvious — those office buildings, warehouses and shopping centers — to the more obscure — data centers, cell towers and even timberlands. Some own residential rental properties or finance home purchases, but those account for only about one-fifth of the overall R.E.I.T. market, according to the National Association of Real Estate Investment Trusts.
A share in a real-estate mutual fund or E.T.F. is “effectively a hybrid of debt and equity,” said Michael J. Acton, managing director and head of research for AEW Capital Management in Boston. “The debt feature is lease payments you get from the underlying properties, and the equity feature is the