Active Real Estate Managers Are Eyeing These Areas

Advisors and income investors have long leaned into passive strategies when it comes to accessing listed real estate investment trusts (REITs). But this is a space where active management can be advantageous over the long haul.

Market participants looking to access that theme may find a friend in the ALPS Active REIT ETF (REIT). The actively managed ETF turns five years old in February and is worthy of consideration at a time when balance sheets in the real estate arena are firm and funds from operations (FFO) metrics are trending in the right direction.

REIT, which sports a solid dividend yield of 3.12%, obviously offers flexibility by way of being actively managed. That’s pertinent to advisors and retail investors because it implies the ETF can provide end users with important clues about what parts of the real estate sector are garnering attention among professional asset allocators.

REIT Lineup Is Compelling

Regarding real estate clues, it appears the ALPS ETF has the goods, including its 19.48% weight to healthcare REITs. That’s the ETF’s second-largest subgroup weight.

“Despite health care leading funds at nearly 18% of assets under management, telecommunications remained the most overweight sector relative to its index weight, invested at 135% of its index share. Recent recovery in sectors affected by the pandemic have led to office moving from underweight to overweight for the first time since the beginning of 2020, and lodging/resorts coming close to parity with their index shares,” according to Nareit.

REIT’s largest subgroup exposure is to specialized REITs. That’s a diverse corner of the real estate sector. Noteworthy to investors is the fact that it’s home to data center landlords. Several of those names are among the ETF’s top-10 holdings, confirming it has some inroads to the AI trade.

Nareit data indicate active real estate managers have also been shifting exposure to lodging and retail landlords. Those two subgroups are also represented in the ALPS ETF. Retail REITs account for 14% of the ETF’s portfolio.

“Increases in lodging/resorts put the sector near parity this quarter after flipping to underweight at the end of 2021. At 99% of its index weight, the sector is now less underweight than self-storage at 93%,” noted the research firm. “Retail and industrial are both meaningfully underweight. Retail is down to 76% of its index share while industrial is down to 80%.”

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