An Outperforming REIT ETF's E-Commerce Connection

Real estate investment trusts and the related exchange traded funds have been relatively stable even as broader equity benchmarks have been ensnared by the Sino-American trade flap.

Now up 18.6 percent year-to-date — an advantage of 520 basis points over the S&P 500 — the largest U.S. REIT ETF is up 3.9 percent over the past 90 days, more than double the returns of the S&P 500 over the same period.

What Happened

The Pacer Benchmark Industrial Real Estate SCTR ETF INDS is one of the more remarkable REIT ETF stories this year. INDS tracks the the Benchmark Industrial Real Estate SCTR Index and is the only ETF dedicated to industrial REITs. This year, that is a great trait for a REIT ETF to possess.

“The ongoing hunt for yield has benefited virtually all income-producing asset classes, and equity REITs have been no exception,” FTSE Russell said in a recent note.

“But the industrial sector has been a particular bright spot within equity REITs, most notably year-to-date. Industrial REIT performance has outpaced that of the broad FTSE Nareit Equity REITs Index for both the year-to-date and one-year periods, and has been the top-performing equity REIT sector in 2019.”

Why It's Important

Exposure to industrial REITs is proving important and rewarding this year, as INDS is beating the largest domestic REIT ETF by more than 420 basis points year-to-date.

The MSCI US Investable Market Real Estate 25/50 Index, the underlying index for the largest REIT ETF, devotes just 7.7 percent of its weight to industrial REITs.

Bullishness around INDS and industrial REITs is not simply a 2019 theme. Much of the ebullience surrounding industrial REITs is attributable to e-commerce, meaning this REIT segment has significant long-term potential.

“Industrial REITs own — and in many cases operate — a wide range of property types, including warehouses, light manufacturing, R&D facilities, office buildings and logistics centers,” according to FTSE Russell.

“While all of these types of real estate can be income-producing, logistics centers in particular have recently been a standout. These types of properties are designed to help purchases get from seller to buyer as quickly as possible — and are increasingly benefitting from an evolving e-commerce industry.”

What's Next

More growth in e-commerce means more real estate needs for the companies involved in that industry. 

“How consumers shop and receive purchases has changed considerably over the past several years. This has been a direct result of the growing on-demand economy, where overnight — and in some cases same-day — delivery is increasingly becoming the norm,” according to FTSE Russell.

“The trend has presented the need for space close to densely populated areas where consumers are more concentrated, prompting REITs to introduce logistics facilities in urban centers. This has been a key area of growth for Industrial REITs, largely supporting the sector’s recent rally.”

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