REITs: Laggards, but for how long?
Rising rates and high expectations have hurt the real estate vehicle, but a few factors could brighten its outlook
March 29, 2017 | by John Waggoner | InvestmentNews.com
In this market, looking for bargains is like looking for a good show on local cable at 2:00 in the morning. While commercial real estate isn’t cheap, REITs offer decent yields — and the chance to buy something that hasn’t participated in the latest bull move.
Even though the Standard & Poor’s 500 stock index has gained 18.3% the past 12 months, the real estate sector has risen just 6.1%, according to Morningstar (MORN). Even in the rally this year, buoyed by the prospects of tax cuts and reduced government regulations, REITs have gained just 0.6%, versus 5.9% for the blue-chip index.
What gives? Traditional reasons for REIT underperformance, for a start. The 10-year Treasury note rose from 1.37% in July last year to 2.61% on March 13. Wall Street often sees REITs, like utility stocks, as bond proxies, and bond prices fall when interest rates rise.
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