Hello! This week’s ETF Wrap takes a look at real estate funds during a “tricky” time for investing. You’ll find views from Greg Kuhl, a portfolio manager for the global property team at Janus Henderson Investors, as well as David Auerbach, who is a managing director at Armada ETF Advisors.
With both stocks and bonds down this year, some real estate ETFs may be mitigating the pain for investors.
On a relative basis, “REITS have done really well,” said Greg Kuhl, a portfolio manager for the global property team at Janus Henderson Investors, in a phone interview. Kuhl said he is a portfolio manager for the Janus Henderson U.S. Real Estate ETF, an actively managed fund that invests in real estate investment trusts, or REITS, listed in the U.S. and Canada.
“You’ve got something that behaves differently” from stocks and bonds, and that sort of diversification is proving helpful right now, he said.
Shares of the Janus Henderson U.S. Real Estate ETF JRE have slipped just 0.1% this year through Wednesday, according to FactSet data. Funds tracking the S&P 500 and an index of the total U.S. investment-grade bond market have had a tougher time so far in 2022.
For example, shares of the SPDR S&P 500 ETF Trust SPY are down 6.4% this year through Wednesday, while the iShares Core U.S. Aggregate Bond ETF AGG has dropped 9.2% over the same period, FactSet data show.
“It’s a tricky environment to invest in”, with “crosscurrents” from high inflation, rising interest rates and a potential slowdown of the economy as the Federal Reserve continues tightening its monetary policy, said Kuhl. He said that he is looking for “pricing power,” or landlords that can “push rents” at high occupancy.
The Janus Henderson U.S. Real Estate ETF typically holds 20 to 30 positions in REITs linked to different types of properties such as industrial, self storage and residential, according to Kuhl.
“From a pricing power point of view, the strongest sector in real estate is industrial,” he said. “At a national level, warehouses are at the highest occupancy that they’ve ever been,” while rent growth is “about the highest it’s ever been.”
Another area of the market, self storage, has “surprised us a little bit,” said Kuhl. The pandemic has created “a new source of demand for this asset class” as people have been “decluttering” to make room for their home offices.
Even when the pandemic ends, the “hybrid” work trend is probably “here to stay” as many people may not want to return to the office five days a week, he said. “It’s still a lot cheaper to keep things in a storage facility than to go rent a two-bedroom apartment instead of a one bedroom apartment, for example.”
Meanwhile, apartments and single-family rentals should benefit as soaring U.S. home prices and climbing mortgage rates create affordability issues, according to Kuhl and David Auerbach, who is a managing director at Armada ETF Advisors.
“The American dream of owning a home is getting further and further out of reach for the average American,” Auerbach said in a phone interview. “Consumers are going to turn to other avenues, such as single-family rentals,” apartments or manufactured housing communities.
Armada’s Home Appreciation U.S. REIT ETF
an actively-managed fund focused on residential real estate, has exposure to these types of properties, he said. The ETF, which began trading at the start of March, is up nearly 4% this week based on Thursday afternoon trading, FactSet data show, at last check.
Auerbach said that the Home Appreciation U.S. REIT ETF holds shares of American Campus Communities Inc.
the developer of high-quality student housing in the U.S. that Blackstone agreed to buy in a deal valuing the company at $12.8 billion including debt. Shares of American Campus Communities jumped on news of the agreement, which the student-housing owner announced April 19.
In other ETF-related news this week, Fidelity Investments has created a metaverse experience for investors so they can learn about stocks, mutual funds and exchange-traded funds. The Fidelity Metaverse ETF
began trading Thursday.
See: Fidelity seeks to attract investors through ‘interactive’ metaverse experience
Here’s your weekly look at the top performing ETFs over the past week through Wednesday, and those that ranked among the bottom five, based on FactSet data.
Vanguard Extended Duration Treasury ETF
Vanguard Long-Term Corporate Bond ETF
ARK Genomic Revolution ETF
SPDR Portfolio Long Term Corporate Bond ETF
AdvisorShares Pure US Cannabis ETF
Source: FactSet, through Wednesday, April 20, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater
Cathie Wood’s flagship ARK fund tumbles more than 60% from its 2021 peak (MarketWatch)