This weekend, New York Times
reporter Conrad De Aenlle looked at REITs and the funds that invest in them
, and argued that with the real estate sector showing signs of recovery nationwide and with low yields everywhere else, REITs can be a strong play for money managers.
The article notes that the Vanguard REIT Index ETF
, by far the largest REIT fund, returned 2.8 percent last quarter, while the average real estate mutual fund was up 3.5 percent. The S&P 500 dropped 3.3 percent during the same period.
And funds have followed the yield.
"Investors seem willing to pay up for assets that yield 3.3 percent, as an average REIT does, when 10-year Treasuries yield much less and require locking up capital for that long, and bank deposits and money-market accounts pay next to nothing," De Aenlle writes.
But he also notes signs that REITs may be overpriced. REITs' ratio of price-to-funds from operations currently stands at around 18.5, versus a long-run average of 13, and they're trading at a 12 percent premium to net value of assets, compared to a historical average premium of 3 percent.
The story quotes Jeffrey Leventhal
, a partner at HighTower
, who recommends funds from Principal Real Estate Securities, CGM Realty and Fidelity Real Estate Income.
, a Morningstar analyst, recommends T. Rowe Price Real Estate, J.P. Morgan U.S. Real Estate, Neuberger Berman Real Estate, Nuveen Real Estate Securities and Cohen & Steers Realty Shares. But he says the Vanguard ETF "gives you the broadest possible exposure to the domestic U.S. real estate market."
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