Citi Research recently released a huge report that took an in-depth look into trends in REIT ownership. In the report, analyst Michael Bilerman broke down five key REIT trends that investors should be watching.
Rough Year
So far this year, REITs have plunged about 7 percent. According to Bilerman, this pullback has made REIT valuations much more compelling.
Turnaround Trends
Bilerman included the following five trends as reasons to believe that REITs will begin their turnaround in the near future:
- 1. Pension funds, endowments and foundation investment allocation are on the rise.
- 2. REIT privatization trends highlight attractive valuations and provide funds for reinvestment.
- 3. There is increasing acceptance of REITs as a quasi-GICS sector that would lead to further future allocation in the space.
- 4. FINRA Reg 15-02 has continued to push retail investors away from non-traded REITs and toward public options.
- 5. Negative funds' flow from dedicated REIT mutual funds and ETFs could soon be on the decline.
REIT ETFs
In the report, Bilerman discussed the top individual REIT names held by mutual funds and pension funds, but 11.5 percent of all REITs are held by ETFs.
Traders that want to profit off the five themes mentioned above should consider the largest REIT-dedicated ETF, the Vanguard REIT Index Fund VNQ.
Alternatively, traders could opt for the iShares Dow Jones US Real Estate (ETF) IYR or the more diversified Select Sector Financial Slct Str SPDR Fd XLF, which includes approximately 15 percent REIT weighting.
Disclosure: The author holds no position in the stocks mentioned.
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