WASHINGTON, DC—April was another soft month for equity REITs, according to the FTSE/NAREIT All REIT Index. The industry association NAREIT reported that the index fell 1.7% during the month, while the S&P 500 Index notched up by 0.4%. As usual, there were outliers and laggards within the individual sectors. Timberland REITs delivered total returns of 3.5% in April, for example, while returns for infrastructure REITs rose 2%. Self-storage REITs, usually a winning category, fell by 10.7% in April.
Year to date, however, REITs have outpaced the broader equity market, Brad Case, NAREIT's senior vice president of Research & Industry Information, told GlobeSt.com. Through the end of April, the total returns of the FTSE/NAREIT All REIT Index were 4.1%, while the S&P 500 Index has gained 1.7%. March, for example, was a particularly good month for REITs, with the FTSE/NAREIT All REIT Index rising 10% and outperforming the S&P 500 Index's 6.8% increase that month.
The back story to this back-and-forth is the larger uncertainty investors have about the stock market and macroeconomic and global trends, Case said. “People are still trying to figure out if they want to cut back their exposure to stocks or not as they get further clarity on macroeconomic conditions and interest rates.”
This, of course, has been the narrative for REITs — and the general economy — for some time, with REITs advancing and then retreating, depending on any number of short-term factors.
Real Estate Gets Its Own Category
A shift though, albeit a very gradual one, will be coming in September for REITs, when the S&P Dow Jones Indices and MSCI Inc. stock indexes give real estate securities their own category within the Global Industry Classification Standard instead of lumping them together under the general financial sector umbrella.
In the aggregate, the change will have a huge impact. Market analysts such as Cohen & Steers have estimated that an additional $100 billion or more will move into the REITs sector as equity fund managers re-balance their portfolios to account for the new category.
In the short run, or perhaps better put, in real time, it will be difficult to see any impact at all, according to Case . “The effect of the new category will happen gradually over a long period of time, giving the market plenty of time to get used to it.” Funds need to be established in some cases, he said; for other funds the problem is not having the specialized expertise in house.
“There are fund managers out there with mandates that include REITs but they have never really understood real estate so they have avoided investing in real estate securities. They have been able to disguise this because the indices don't break out real estate as a sector,” Case said.
In the long run, the change will reduce volatility and decrease the correlation between the larger equity market and real estate, Case said.
WASHINGTON, DC—April was another soft month for equity REITs, according to the FTSE/NAREIT All REIT Index. The industry association NAREIT reported that the index fell 1.7% during the month, while the S&P 500 Index notched up by 0.4%. As usual, there were outliers and laggards within the individual sectors. Timberland REITs delivered total returns of 3.5% in April, for example, while returns for infrastructure REITs rose 2%. Self-storage REITs, usually a winning category, fell by 10.7% in April.
Year to date, however, REITs have outpaced the broader equity market, Brad Case, NAREIT's senior vice president of Research & Industry Information, told GlobeSt.com. Through the end of April, the total returns of the FTSE/NAREIT All REIT Index were 4.1%, while the S&P 500 Index has gained 1.7%. March, for example, was a particularly good month for REITs, with the FTSE/NAREIT All REIT Index rising 10% and outperforming the S&P 500 Index's 6.8% increase that month.
The back story to this back-and-forth is the larger uncertainty investors have about the stock market and macroeconomic and global trends, Case said. “People are still trying to figure out if they want to cut back their exposure to stocks or not as they get further clarity on macroeconomic conditions and interest rates.”
This, of course, has been the narrative for REITs — and the general economy — for some time, with REITs advancing and then retreating, depending on any number of short-term factors.
Real Estate Gets Its Own Category
A shift though, albeit a very gradual one, will be coming in September for REITs, when the S&P
In the aggregate, the change will have a huge impact. Market analysts such as Cohen & Steers have estimated that an additional $100 billion or more will move into the REITs sector as equity fund managers re-balance their portfolios to account for the new category.
In the short run, or perhaps better put, in real time, it will be difficult to see any impact at all, according to Case . “The effect of the new category will happen gradually over a long period of time, giving the market plenty of time to get used to it.” Funds need to be established in some cases, he said; for other funds the problem is not having the specialized expertise in house.
“There are fund managers out there with mandates that include REITs but they have never really understood real estate so they have avoided investing in real estate securities. They have been able to disguise this because the indices don't break out real estate as a sector,” Case said.
In the long run, the change will reduce volatility and decrease the correlation between the larger equity market and real estate, Case said.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
