A checklist comprising above-average income, attractive valuations, and positive correlations to possible interest rate cuts may sound daunting. But it is possible for investors to check all those boxes with various sector-level plays. Enter the real estate sector and the ALPS Active REIT ETF (REIT).
Real estate investment trusts (REITs) have lagged this year. But some of that disappointment is likely attributable to the Federal Reserve’s reluctance to lower interest rates. That’s a meaningful consideration when evaluating ETFs like REIT. That’s because real estate stocks are among the most rate-sensitive. Following a disappointing jobs report and downward revisions of prior months’ data, the central bank may have not choice but to pare rates next month.
That could support a REIT resurgence, but that’s not the only potential tailwind for the ALPS ETF. As noted above, valuations on income-generating real estate equities are currently depressed. That indicates REIT presents market participants with a low cost of admission for accessing big dividends.
REIT ETF Has Advantages
REIT’s status as an actively managed ETF could be particularly beneficial to prospective investors in the current climate. That’s because it implies the fund’s managers can capitalize on valuation opportunities. It also implies they can possibly allocate to real estate equities that could rally on the back of rate cuts.
Regarding the sector’s valuation case, REIT is already tethered to that story. That’s because some of its holdings look inexpensive today, including Macerich (MAC). That’s a shopping mall REIT that has shed lower-quality assets to buffer against the online shopping boom.
