REITs Continue To Fly Under The Radar

Real estate investment trusts (REITs) represent a type of security that invests in real estate, through either property or mortgages, and typically trade on an exchange. While many concerns have been raised about non-traded REITs in recent years, publicly traded REITs, both in the U.S. and globally, have turned in some impressive results of late. Consider the performance of two of the better known indexes that track U.S. and global REITs over the past year and thus far in 2016.

Source: Wells Fargo Advisors as of May 3, 2016. Index performance is total return performance which includes gains and losses plus income unless otherwise noted. You cannot invest directly in an index. Past performance is not an indication of future results.

As a point of reference, the S&P 500 index; a widely recognized benchmark of U.S. stock market performance, has returned 1.21% and 1.74% respectively over these timeframes. Yet despite this apparent momentum, and some recent optimistic forecasts from a couple of well-known investors such as Jeffrey Gundlach, CEO of DoubleLine Capital and Bill Gross, Portfolio Manager at Janus (specifically related to mortgage REITs – click here for Morningstar’s account of this forecast), REITs have basically continued to fly under the radar of the attention of the media and many investors for some reason.

Perhaps this aversion is due to either the lingering effects of the non-traded REIT fallout on advisors or concerns that REITs may not perform well in a rising interest rate environment. Many assume that REITs are synonymous with the housing market and while there may be some correlation with mortgage REITs and housing, there are many other different sectors of REITs available for consideration that are not necessarily as correlated to residential housing. According to the Global Industry Classification Standard (GICS), as published by MSCI, there are currently nine sub-industries of REITs as follows:

1. Diversified REITs – companies or Trusts with significantly diversified operations across two or more property types.