5 Reasons Why REIT ETFs Are Surging
Zacks Investment Research | Jul 16, 2021 08:00AM ET
REIT ETFs have been rallying hard lately with most funds hovering around a 52-week high level. Vanguard Real Estate Index Fund ETF Shares (VNQ) added about 24.1% this year compared with 16.1% gains in the SPDR S&P 500 ETF (SPY).
While low rates caused by the dovish Fed and fears for the delta variant of Covid-19 have been keeping the rates low and boosting the rate-sensitive sectors, some industry-specific factors have also been fueling the upside in REIT ETFs.
Below we highlight a few factors that have been helping the sector.
Rising Inflation
The current economic backdrop is promising for an inflation comeback. Consumer Price Index (CPI) in the United States increased to 270.98 points in June from 268.55 points in May of 2021. The cost of living in the United States has surged the most in 13 years. In a rising inflation environment, real estate stocks act as a good bet. Both, resale value of the property and rental income, rise with price inflation (read: Consumer Price Sees Biggest Jump in 13 Years: ETFs to Gain ).
Uptick in Home Prices is a Boon for Renters
The U.S. homebuilding sector is on fire. Thanks to extremely low mortgage rates, home sales are upbeat. But higher demand for home buying as well as lack of labor and land has boosted home prices. This is a great scenario for renters.
Data center REITs own and manage facilities that aid customers to safely store data. These REITs provide continued power supplies, air-cooled chillers and physical security.
Meanwhile, cell-tower REITs area has been a beneficiary of the rapid rollout of 5G. Investors should note that increased consumption of mobile data has been boosting this space.
Real Estates Are Lucrative Amid a Low-Yield Environment
If these are not enough, a general low-rate environment is great for real estate stocks and ETFs as these are high-yielding in nature. The benchmark U.S. 10-year treasury yield was 1.38% on Jul 1. Against such a low-yield backdrop, dividends offered by real estate ETFs are quite sturdy.
ETFs in Focus
Some of the decent real estate ETF plays that offer superb yields are Invesco KBW Premium Yield Equity REIT ETF REM (yields 6.0%).
On the other hand, Pacer Benchmark Industrial Real Estate ETF (INDS), Ppty U.S. Diversified Real Estate ETF RWR are some of the funds that have been hovering around a 52-week high currently.
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