REITs – The Timing may be Just Right

Sheaff Brock Investment Advisors REITs portfolio performance investing in apartments

REITs – The Timing may be Just Right

Investment income can be rather hard to find these days, as you’ve no doubt noticed. With interest rates in “the 2’s,” (not to mention the risk of principal loss when, as Kiplinger predicts, those rates likely rise), it’s time to get strategic, taking a broader look at portfolio possibilities. When both stock and bond markets become more unpredictable, Sheaff Brock feels it becomes important to diversify into assets that are less correlated with traditional stock, bond, and cash holdings. While real estate ownership nicely fits the non-stock-and-bond-correlation bill, direct ownership of real property comes with some big challenges: it’s illiquid, expensive, and time-consuming.

In past years, one solution for investors has been Real Estate Investment Trusts (REITs)—companies that own and manage income-producing real estate. When REITs came on the scene more than sixty years ago, they quickly became a favorite with income-seeking investors because, as David Nethercut of put it, they “democratize real estate investment.” By law, REITs are required to maintain dividend payout ratios of at least 90%. Investors also appreciated the simplified tax treatment as compared with direct ownership of income-producing real estate. Those seeking diversification would need to buy a fund of REITs. Today, the most popular REIT funds and ETFs (Exchange Traded Funds) own nearly the same large-cap companies, with little exposure to smaller or mid-sized REITs.

Sheaff Brock’s new Real Estate Income & Growth portfolio bears only slight resemblance to those large, relatively monochromatic funds and ETFs. The portfolio’s spread of all market capitalization companies includes:

  • medical properties
  • apartments
  • storage facilities
  • hotels
  • retirement community properties
  • timberland
  • billboards

In addition to diversification, there are three other guiding principles characterizing Sheaff Brock’s approach to real estate portfolio design:

In fact, great care was taken to keep the Sheaff Brock Real Estate Income & Growth portfolio “nimble.” In a special interview with our SheaffBriefs editor, Managing Directors Ron Brock and Dave Gilreath explained the special timing factors that encouraged them to expand the firm’s portfolio offerings beyond stocks, bonds, and options, and to venture into income-producing real estate. Here are their thoughts:

Real Estate Investment Trusts are not “new.” However, in terms of nimbleness and diversification, there’s a whole lot of “new” to be excited about in the Sheaff Brock Real Estate Income & Growth portfolio!

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