Add income and exposure to real assets with REITs

RReal estate investment trusts (REITs) have the potential to give investors monthly income to get an extra dose of yield to cover inflation, which is almost imperative in today’s market environment. A combination of monthly distributions and price appreciation in a rising real estate market can open up these types of opportunities.

“REITs are organized to pay out most of their taxable income to investors in the form of dividends,” Yahoo! Financial article explained. “Since they are often able to raise rents on owned properties, many have the means to keep up with, or sometimes beat, inflation.”

Real estate market analysts all have different views on where the sector could go as rising interest rates made buyers think twice despite the start of price declines after pressure on the rise since the start of the pandemic. Still, others say a real estate super cycle could be underway as prices could continue to rise, forcing the market to become heavily dependent on rental income.

Of course, that doesn’t hurt the real estate investment market, especially REITs that derive the majority of their income from rentals. Even though analysts expect the tricky real estate market to slow down REITs, positive growth is still to be expected.

“The likelihood of a tenant going bankrupt is probably less,” said Michael Souers, S&P director and senior real estate analyst. “The impact is likely to be more moderate than the global financial crisis in terms of lower rents or same store (net operating income).”

Get global real estate exposure

To capture this growth, a fund to consider is the Virtus Duff & Phelps Global Real Estate Securities Fund. The fund seeks attractive long-term returns by providing exposure to global real estate securities, with an emphasis on companies whose income is driven by recurring rental income.

The highly experienced portfolio team applies a disciplined bottom-up investment process, utilizing both qualitative and quantitative factors, with a focus on high quality commercial property owners/operators. This frees investors from having to do all the research themselves to select individual stocks to gain global exposure to real estate.

Characteristics of the fund according to its product website:

  • Attractive income and growth potential: Seeks the stable cash flow offered by contractual rental income, with a focus on REITs with strong management teams focused on long-term value creation.
  • Broadens Portfolio Diversification: Provides exposure to the lower correlations that the global real estate market has historically presented to traditional stocks and bonds.
  • Low-volatility approach: A high-conviction, low-turnover portfolio of 50-70 stocks strives to take advantage of valuation inefficiencies and historically higher long-term risk-adjusted returns of rental real estate companies relative to corporations not rental.

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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.