Advisors say REITs right as rates sink and stocks sell off

investmentnews.com:

It’s been rough sledding for the S&P 500 in the past month. The benchmark index is down over 4 percent as questions about the strength of the economy have begun to rein in those rampaging bulls.

On the flip side, shares of the iShares US Real Estate ETF (Ticker: IYR) have jumped over 9 percent over the same period due to a precipitous move lower in interest rates and increasing calls for the Federal Reserve to begin the cutting process.

So is it finally time for financial advisors to “get real” and start buying REITs again?

Jeffrey Palma, head of multi-asset solutions at Cohen & Steers, says valuations have been challenged for real estate and listed infrastructure for the past few years. However, he believes that the bad news in this highly rate-sensitive sector is already priced into the stocks.

“When we think about slowing growth and higher interest rates, that’s already reflected in valuations,” said Palma. “So for our longer term expectations that actually means that those real asset categories of the market look better relative to traditional markets where valuations are much higher.”

Andrew Graham, founder and portfolio manager at Jackson Square Capital, is maintaining a “cautiously constructive” outlook for REITs. It’s too early to be calling this the bottom of the market based on improved June property price data and the data-driven pullback in yields in his view, but “sentiment remains downbeat, which makes this an opportunity.”

“Performance over the next few months will be driven by bond yields and another 40 basis-point decline in bond yields will be good for REITs in the near term,” said Graham, who owns a number of REITs in his ‘Income and Growth’ strategy that looks for sustainable dividend yields of more