JThis year, the real estate sector is one of the best performing groups in the S&P 500, and some research firms believe the bullish trend will continue through 2022.
This would be constructive for a range of exchange-traded funds, including ALPS Active REIT ETF (NASDAQ:REIT). The actively managed REIT made its debut in late February and performed well despite being out for almost the first two months of the year. The ALPS fund is up 24.46% since its launch.
REITs could build on this impressive start to 2022, with some analysts signaling a bigger upside for real estate stocks in the new year. BMO Capital Markets recently upgraded the sector from “underweight” to “equity weight”.
“Blended (operating funds) growth for real estate has steadily improved in recent months, reaching double-digit territory for the first time in four years,” chief investment strategist Brian Belski said in a statement. note to customers. “On a relative basis, FFO growth appears to have bottomed out, while NTM’s growth forecast continues to accelerate relative to the market rate.”
Understanding financial health
The FFO is an essential tool for valuing real estate investment trusts (REITs) and paints a picture of a REIT’s financial health. Along the same lines, REIT’s active management style is advantageous on this front, as managers can adopt strong FFO names as they see fit. Index strategies are not so nimble.
“Revisions have also been quite strong, as the magnitude of FY1 and FY2 FFO upward revisions have held above 70% for seven consecutive months, creating a solid backdrop for growth heading into 2022,” Belski adds. “Dividend growth, which represents a key attribute for real estate, has shown clear signs of improvement recently, but at the same time there is still some way to go to reach its pre-pandemic level.”
Although real estate is considered a rate-sensitive sector and the Federal Reserve is likely to raise interest rates next year, REITs should not be ignored as economic growth could further support the rise in real estate stocks in the during the new year.
“Furthermore, historical price action in the sector has generally been more sensitive to the economy than other performance indicators, which should help performance next year as U.S. economic growth is expected to remain above the trend,” adds BMO Capital Markets.
Other REIT ETFs include Schwab US REIT ETF (NYSEArca:SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.