It's time to buy REITS to hedge against inflation, even though the real estate sector has struggled so far this year, says investment research firm
CFRAraised its rating on the S&P 500 Real Estate sectorto marketweight from underweight on Friday.
- The investment research firm said
REITsare a strong hedge against inflation, which has kicked up to a 41-year-high of 8.5%.
It's time to consider buying
The S&P 500 Real Estate sector has dropped about 3% so far this year but is outperforming the broader S&P 500 index, which tilted again Friday toward correction territory, or a loss of 10% or more from recent highs.
In a note, CFRA raised its recommended exposure to the sector to marketweight from underweight but did not name individual stocks in its ratings change. The sector includes real estate management and development services.
Real estate investment trusts, or REITs, are "a strong inflation hedge, with sub-industries that issue short-term leases able to adjust quickly to rising prices," wrote Sam Stovall, chief equity strategist at CFRA. US inflation in March accelerated to 8.5%, the fastest increase since December 1981, led by sharper prices for gas, shelter and food.
REITs can benefit from price increases for rents and from higher real estate values during hotter inflationary periods. But REIT stocks have been volatile this year, said Stovall.
"This volatility has been further amplified recently with the yield curve inversion signaling an increasing likelihood of a recession in 2022 or 2023," he said.
Yields on US Treasurys have climbed this year as investors price in expectations for the Federal Reserve to aggressively raise benchmark interest rates to tamp down on inflation. Shorter-dated bond yields, which are most sensitive to interest rate changes, have been rising above those on some longer-dated government bonds, indicating heightened worries about the
REITs collectively owned more than $3.5 trillion in gross assets across the US, according to industry group Nareit.
- India's GDP growth surges to 8.4% in Q3, 2023-24 growth rate pegged at robust 7.6%
- Fiscal deficit at Jan-end touches 63.6% of full year target: Govt data
- Cabinet approves 3 semiconductor fab units, to generate 80,000 jobs
- RIL shares climb nearly 1% after announcing mega merger
- Key infra sectors' growth slows to 15-month low of 3.6% in January