Pariah Capital is very interested in the real-estate sector, for the simple reason that nobody else is.
The latest BofA Securities Global Fund Manager Survey shows that the world's top money managers have largely given up on real estate and real-estate investment trusts as an asset. "Real estate allocation is 22% underweight (vs 21% net underweight a month ago)," BofA Securities reports. "Current allocation is 1.6 [standard deviations] below its long-term average," it adds, which is another way of saying fund managers' allocation to REITs is unusually low.
They've been dumping real-estate trusts for several months, and net allocation has dropped toward the levels seen briefly last year and, more remarkably, in the wake of the famous real-estate meltdown of the global financial crisis.
This is happening at the same time that investors are pouring money into gold, other metals and cryptocurrencies as "real" assets that are "safe havens" from the insanity threatening paper currencies — especially here in Weimar America. Isn't real estate a "real" asset?
Pariah Capital is this column's tongue-in-cheek occasional series about the follies of investment-manager groupthink. We examine what would happen if you just did the opposite of the big-money crowd. Generally speaking, you would do pretty well .
Financial adviser John Coumarianos, a former real-estate analyst and now CEO of Mindful Advisory in Northvale, N.J., believes U.S. real-estate investment trusts, or REITs, now look "reasonably priced," especially when compared with the rest of the stock market.
The sector currently trades for about 17.5 times annual funds from operations, compared with an average of about 15.5 times since 2000, he says.
It says something ominous about the overall state of euphoria on Wall Street that even the sector most disliked by investors is still not especially cheap.
The one caveat is that the sector's composition has changed over the years," Coumarianos adds. "You're not simply getting multifamily, office, retail, industrial, healthcare and hotels when you buy the index now. The index still contains those property types, but in lower proportion than previously because of the rise of cell towers and data centers.
REITs enjoy a tax-privileged status because they avoid U.S. corporation tax on income they distribute to their investors, so long as they meet certain legal and financial requirements. If you, the investor, own them in a tax shelter such as an IRA, you also avoid tax.
A study a few years ago argued that real estate worldwide had produced higher overall average returns, dating back to 1960, even than stocks.
According to data from the National Association of Real Estate Investment Trusts, U.S. REITs have earned investors a compound annual return of 9.1% per year since the start of 1972.
But nearly all the returns over time have come from the dividends, not from price appreciation. This means investors should look closely at the dividend yield when they buy REITs. Right now the expected yield on the iShares U.S. Real Estate ETF is 4.2%, according to FactSet data. Meanwhile the bond market is predicting inflation of about 2.4% ahead, so investors might factor in a real yield of 1.8%.
Normally, we could compare that to the real yield on Treasury inflation-protected securities, or TIPS, but due to the turmoil at the Bureau of Labor Statistics at the moment, it's not entirely certain that you will be able to depend on official inflation figures, and therefore TIPS real yields, in the future. Only time will tell.
Coumarianos says academic studies raise questions about whether real-estate trusts are truly the portfolio diversifiers many people on Wall Street claim. (This, incidentally, is also true about various other "magic beans" investing products currently being prepared for the public, such as private equity.)
And while REITs typically pay high dividends, those dividends are subject to fluctuations, just like those from other companies. Rolling annual payouts across the REIT sector dropped by almost half during the depths of the global financial crisis, and again during the pandemic.
Doug Ramsey, chief strategist at the Leuthold Group, includes REITs among the seven assets in his clever "All Asset No Authority" portfolio, which spreads its best equally across U.S. large caps, U.S. small caps, international stocks, 10-year U.S. Treasury bonds, gold and commodity futures, as well as REITs.
"REITs are absolutely a valid asset class," he says, adding that they are out of favor, along with other dividend-paying value stocks. "I think there's an opportunity there." (Ramsey says he likes "dividend aristocrats" — companies that have raised their dividends every year for at least 25 years — even more than REITs, but he isn't budging about keeping REITs in the AANA portfolio.)
Investors can go with a straight low-cost REIT index fund such as IYR or the Vanguard Real Estate ETF. Those who specifically want to orient their investment more toward residential real estate have a couple of ETF options, such as iShares Residential & Multi Sector Real Estate ETF, which charges 0.48% a year, and Armada’s Residential REIT ETF, which charges 0.6%.
Whether there is still a strategic long-term case for REITs is a matter of debate. The tactical case for buying some because they are out of fashion looks stronger.
But as always, there are no free lunches.
0 komentar:
Posting Komentar