Real estate ETFs see these types of properties weather a ‘tough’ time to invest

Good morning! This week’s ETF Wrap takes a look at real estate funds during a “tricky” time to invest. You’ll find insights from Greg Kuhl, portfolio manager for Janus Henderson Investors’ global real estate team, as well as David Auerbach, managing director of Armada ETF Advisors.

With stocks and bonds down this year, some real estate ETFs could ease the pain for investors.

On a relative basis, “REITs have done very well,” Greg Kuhl, portfolio manager for Janus Henderson Investors’ global real estate team, said in a phone interview. Kuhl said he was a portfolio manager for the Janus Henderson US Real Estate ETF, an actively managed fund that invests in real estate investment trusts, or REITs, listed in the United States and Canada.

“You have something that behaves differently” from stocks and bonds, and that kind of diversification comes in handy right now, he said.

Shares of the Janus Henderson US Real Estate ETF JRE were down just 0.1% this year through Wednesday, according to FactSet data. Funds that track the S&P 500 and an index of the broad 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 US Aggregate Bond ETF AGG is down 9.2% over the same period, according to FactSet data.

“It’s a challenging environment to invest,” with “cross-currents” of high inflation, rising interest rates and a potential slowing economy as the Federal Reserve continues to tighten monetary policy, said said Kuhl. He said he was looking for “pricing power” or landlords who could “push rents” at high occupancy.

The Janus Henderson US Real Estate ETF typically holds 20 to 30 positions in REITs related to different types of properties such as industrial, self-storage and residential properties, according to Kuhl.

“From a pricing perspective, the strongest real estate sector is industrial,” he said. “Nationally, warehouses are at the highest occupancy rate they’ve ever been,” while rent growth is “about the highest they’ve ever been.”

Another sector of the market, self-storage, “surprised us a bit,” Kuhl said. The pandemic created “a new source of demand for this asset class” as people “decluttered” to make room for their home office.

Even after the pandemic is over, the “hybrid” work trend is likely “here to stay,” as many people might not want to return to the office five days a week, he said. “It’s always much cheaper to keep things in a warehouse than to go and rent a two-bedroom apartment instead of a one-bedroom apartment, for example.”

Meanwhile, apartments and single-family rentals stand to benefit as soaring U.S. home prices and rising mortgage rates create affordability issues, according to Kuhl and David Auerbach, managing director of Armada ETF Advisors.

“The American dream of owning a home is becoming increasingly out of reach for the average American,” Auerbach said in a phone interview. “Consumers will look to other avenues, such as single-family rentals,” apartments, or prefab housing communities.

Armada’s Home Appreciation US REIT ETF HAUS,
+0.21%,
an actively managed fund focused on residential real estate, has exposure to these types of properties, he said. The ETF, which began trading in early March, is up nearly 4% this week based on Thursday afternoon trading, according to FactSet data, when last verified.

Auerbach said the Home Appreciation US REIT ETF owns shares of American Campus Communities Inc. ACC,
,
the developer of high-quality student housing in the United States that Blackstone has 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 deal, which the owner of student housing announced April 19.

In other ETF-related news this week, Fidelity Investments has created a metaverse experience for investors so they can learn more about stocks, mutual funds and exchange-traded funds. The Fidelity Metaverse FMET ETF,
-2.40%
began trading on Thursday.

To see: Fidelity seeks to attract investors with an “interactive” metaverse experience

Here’s your weekly look at the best performing ETFs from last week through Wednesday, and which ones made the bottom five, based on FactSet data.

Good…
The bad…
The worst performers %Performance

Vanguard Extended Duration Treasury ETF EDV,
-0.95%

-4.1

Vanguard Long-Term Corporate Bond ETF VCLT,
-1.47%

-3.3

ARK Genomics Revolution ETF ARKG,
-4.90%

-3.2

SPDR Portfolio Long Term Corporate Bond ETF SPLB,
-1.48%

-3.1

AdvisorShares Pure US Cannabis ETF MSOS,
-2.74%

-3.1

Source: FactSet, through Wednesday April 20, excluding ETNs and leveraged products. Includes ETFs traded on the NYSE, Nasdaq and Cboe of $500 million or more

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