The Importance of REITs in a Diversified Portfolio

Sheaff Brock REITs portfolio investment strategy

The Importance of REITs in a Diversified Portfolio

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. In today’s environment, Sheaff Brock Managing Director Ron Brock explains, REITS can make a lot of sense for investors searching for diversification and yield.

While direct ownership of income-producing real estate typically means loss of liquidity, REITS trade on major exchanges like stocks and can provide investors with an extremely liquid stake in real estate. In fact, the three primary advantages of REITS include:

  • active professional management
  • transparency
  • liquidity

REITS are defensive on both “flanks”, Brock points out. They tend to be non-correlated with the stock market, (meaning that they serve a defensive function in a portfolio), and yet they are less interest-rate sensitive than bonds. REITS have existed in the U.S. for more than fifty years, originally consisting of office buildings leased to tenants. Required by law to maintain dividend payout ratios of at least 90%, REITS can be a favorite choice for income-seeking investors.

The new Sheaff Brock Real Estate Income & Growth portfolio will include 15-20 different REITS, focused in four or five different sectors. Today Sheaff Brock sees particular value, Brock explained to our editor, in several property sectors, including:

Healthcare REITS—These often include assisted living facility properties. “The consistency of medical REITs makes sense,” says Kiplinger. “They are not closely tied to consumer spending, travel, and job growth, so they hold up in bad times.” Healthcare REIT portfolios can include hospital properties, nursing homes, and medical labs along with assisted living residences.

Apartment REITS—Millennials are deferring home ownership and demanding apartment space. What’s more, Brock noted, in certain areas of the country (the West Coast being one prime example), the steep rise in the cost of home ownership has fueled a demand for apartment properties.

Storage facility REITS—“Americans are storing more stuff than ever, writes Tom Vanderbilt in Slate.com, with one in eleven households using self-storage space. The same trends affecting the boost in healthcare REITS are at work here, Brock notes, with seniors storing furniture while transitioning to assisted living, moving to warmer clients, or downsizing.

REITS certainly have an important role to play in a diversified portfolio, Brock concludes.

Contact Sheaff Brock at 866.575.5700 or info@sheaffbrock.com if you are interested in attending our upcoming Knowledge Builder webinar about REIT investments—“REITs, a Cornerstone Asset Class to a Well-Constructed Portfolio”—scheduled online for May 11, 2017.

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