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Are REITS a buy?

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REITs have had a tough go of it over the last five years. The Vanguard Real Estate ETF is up only 21% over the last five years compared to an 81% gain in the S&P 500. On a price-only basis REITs have fallen in price over the last five years. Rising interest rates, shifting secular trends within select REIT sectors, and premium valuations have all contributed to the Vanguard Real Estate ETF’s middling performance, but as the WSJ writes here, some investors are now giving REITs a closer look.

“The tide is turning very slowly. It’s not going to be a sea change,” said Jonathan Woloshin, head of Americas equities and real estate at UBS Global Wealth Management’s Chief Investment Office.

Commercial real-estate values have been appreciating for eight years, but expectations of a moderate slowdown rather than a hard landing are drawing some investors back, albeit cautiously, analysts said.

Within the different REIT sectors, some have continued to experience stable demand and healthy debt levels against the backdrop of a still-humming economy and job growth.

Going into 2018 there had been a view of decelerating real-estate fundamentals, but the first-quarter earnings came in line or slightly better than expectations, said Thomas Bohjalian, executive vice president at global portfolio manager Cohen & Steers Inc. Among malls and shopping-center REITs, “the bottom didn’t fall out as quickly as some investors believed would occur,” Mr. Bohjalian said, adding that Cohen & Steers has recently increased its position in some shopping-center REITs.

REITs remain a sector of interest for us, but bespoke is the way to go here. Off the rack broad-based REIT ETFs such as Vanguard Real Estate aren’t crafted for the discerning investor.

Read more here.

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Jeremy Jones, CFA

Jeremy Jones, CFA is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Jeremy is a contributing editor of youngresearch.com.