Real-estate investment trusts enjoy a good quarter

Real-estate investment trusts enjoyed their best quarter since the first three months of 2012.

The Dow Jones Equity All REIT Index, which tracks 137 real-estate investment trusts, delivered a total return, including dividends, of 7.9% for the first quarter.

REITs have done better than the broader stock market for most of the financial downturn, outperforming the S&P 500 for 11 of the past 16 quarters. Since the market hit bottom in 2009, REITs have returned 233%, compared with 153% for the S&P 500 index.

Investors often gravitate to REITs during tough times because they typically pay higher dividends than other companies. Currently, the average REIT dividend yield is about 3.4%, according the Dow Jones REIT Index, compared with 2% for the S&P 500.

But when Wall Street turns bullish, as it has in recent months, REITs often underperform the broader market. "It's because [stocks] are cheaper and the anticipation that some of the other sectors will return more in the next 12 months to 24 months than REITs," that we think the industry will lag behind, said Hessam Nadji, a managing director at Marcus & Millichap.

Nonetheless, analysts generally expect REITs to generate returns this year ranging from 12% to 15% as long as job growth continues and interest rates remain relatively low. Over the past year, most REITs have reported stronger-than-expected earnings because they have been able to raise rents and boost occupancy as the economy has improved.

Since the market hit bottom in 2009, the value of property owned by REITs has gained 60% and is back to peak levels, according to an index compiled by Green Street Advisors. REITs also have benefited from a dearth of new construction in recent years and the record-low interest rates resulting from the Federal Reserve's quantitative easing program, which has enabled them to raise cheap capital.

Source:  Wall Street Journal

Vanguard REIT Index (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio.

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