The real estate industry is flashing warning signs, with rising mortgage interest rates depressing residential demand and slowing economic growth hurting commercial leases. In response to these headwinds, the iShares U.S. Real Estate ETF (IYR) has fallen nearly 25% since January, while private equity firms have already taken steps to limit redemptions.
Of course, most savvy investors know the best opportunities often arise during a market sell-off. In fact, Warren Buffett famously said to “buy when there’s blood in the streets, even if it’s your own.” In this case, the broad sell-off in real estate investments could lead to discounted valuations for high-performing industry subsets.
Let’s look at four actively-managed real estate ETFs with the flexibility to help investors capitalize on the decline.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
1. ALPS Active REIT ETF (REIT)
The ALPS Active REIT ETF (REIT) is a semi-transparent active ETF that invests at least 80% of its net assets in publicly-traded real estate investment trusts. While the fund doesn’t disclose daily holdings, portfolio managers have recently been overweight on residential, hotel, and retail REITs and underweight on net lease, technology, and office REITs.
Since its inception, the fund has outperformed the S&P U.S. REIT Index by 106 basis points annually. While the fund historically benefited from the rise of hotel, net lease, and self-storage REITs, the fund managers constantly shift their focus based on market conditions, enabling shareholders to capitalize on discounts.
2. Avantis Real Estate ETF (AVRE)
The Avantis Real Estate ETF (AVRE) provides exposure to real estate securities focused on income-derived real estate investments while structuring itself similarly to a REIT. Using its unique portfolio management and trading processes, the fund offers the benefit of indexing with the ability to add value.
The fund’s portfolio focuses on specialized REITs (28.01%), industrial REITs (16.42%), retail REITs (16.17%), and residential REITs (15.23%). The most prominent holdings include American Tower Corp. (6.49%), Prologis Inc. (4.75%), and Public Storage (4.19%). In addition, the fund holds about 30% of its portfolio outside of the U.S., providing added diversification.
3. Cambria Global Real Estate ETF (BLDG)
The Cambria Global Real Estate ETF (BLDG) invests in domestic and foreign real estate companies exhibiting favorable multi-factor metrics, such as value, quality, and momentum. Using a quantitative approach, the actively-managed fund holds a portfolio of about 75 companies and offers unique diversification, with half of its portfolio outside of the U.S.
The fund’s portfolio focuses on retail REITs (30.2%), diversified REITs (20.6%), specialized REITs (12.6%), and residential REITs (12.0%), but no single holding accounts for more than 4% of its portfolio. Regarding its geographic diversification, the fund includes exposure to Canada (8.5%), Turkey (98.3%), South Africa (7.9%), and a broad range of other countries.
4. Invesco Active U.S. Real Estate ETF (PSR)
The Invesco Active U.S. Real Estate ETF (PSR) selects investments included within the FTSE NAREIT All Equity REITs Index using quantitative and statistical metrics to identify attractively priced securities and manage risk. The managers seek high total return through capital growth and current income with monthly portfolio adjustments.
The fund’s portfolio consists of a broad range of real estate industry subsets, focusing on storage and telecom-focused properties. The most significant holdings include SBA Communications (6.49%), Crown Castle (6.26%), and American Tower (6.15%), but it also holds five storage-focused REITs within its top 10 holdings.
The Bottom Line
The real estate sector may be flashing warning signs, but investors may want to use the significant drop as an opportunity to get exposure to the sector at a lower price. Using the actively-managed funds on our list, investors can also target their exposure to specific subsets of the market that may not be as affected, such as telecom, storage, or international properties.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
