The first two months of 2016 were murky for the real estate investment trust (REIT) industry, with soft economic data, weakening corporate earnings outlook, global macroeconomic headwinds and Fed-centric anxieties. Then the madness of March essentially lifted investors' spirits and ushered in good news for the industry.
The benchmark rate was kept steady by the Fed in the March meeting and the possibility of rate hikes was lowered to two from four predicted earlier. If this wasn't enough, the super dovish comment from Fed Chair Janet Yellen made to the Economic Club of New York late last month spread further investor cheer.
The speech revealed that increased global risk has finally taken center stage and that it is appropriate for the policy members to be more cautious on the rate hike issue. Moreover, Yellen stated that she finds it too early to confirm the durability of the recent pick-up in inflation rate.
In fact, her super dovish comments seems to have abated the April rate hike fears, after speculation started brewing up following a spate of contradictory comments on the issue from a number of Fed officials of late.
Therefore, even after the weak performance in January and in the first half of February, the FTSE NAREIT All REITs Index managed to ascend 5.40% this year through Mar 29. Benchmarks too scaled new highs, but REITs led the bunch with FTSE NAREIT All REIT Index returns coming at 9.51% for March (as of Mar 29) against the S&P 500's gain of 6.53%.
No doubt, Yellen's dovish comment further ensures a smooth run for the stocks in the REIT space for an extended period as with ultra low rates, debt-dependent REITs emerge as gainers for their low cost of borrowing. And with bouts of volatility still showing up, the REIT industry remains a good choice, especially for income-seeking investors, for its steady and dependable cash flows.
Finally, a recovery in the domestic economy, particularly backed by strong labor market conditions, increase in consumer spending and improving consumer confidence, is expected to keep the demand for real estate elevated. And with a manageable supply of new units, the real estate owners have solid scope to capitalize on.
Amid this, it seems appropriate to go ahead and select some REIT stocks that have the potential to crush the market this quarter.
How to Pick Market-Beating REITs
With a long lineup of listed REITs, it is not that easy to pick a few REIT stocks that have the strength to enhance your investment returns. So we bank on the Zacks Rank methodology as a Zacks Rank of #1 (Strong Buy) or #2 (Buy) indicates analysts' bullishness on the stock and high chances of outperforming the market over the next 1–3 months.
