Much like 2025, investors and advisors alike are continuing to seek out new sources of diversification as we continue through 2026. One approach is to gain targeted exposure to specific sectors that are underrepresented in traditional core ETFs.

Highlights:

• With geopolitical uncertainty and inflation not going away any time soon, real estate is reemerging with a compelling use case.
• The real estate sector can operate well due to its longstanding role as an inflation hedge, along with its lower correlation to the stock market. Additionally, the fundamentals in the sector are looking more favorable as the year progresses.
• To gain exposure to the sector in a low-cost manner, the State Street Real Estate Select Sector SPDR ETF (XLRE) could be a viable option.

In today’s landscape, investors that are looking at opportunities within individual sectors must also do so through the additional lens of managing geopolitical risk. With the recent conflict in the Middle East, the current imperative for many is to ensure their portfolio is in the right spot to navigate global volatility. 

This is precisely where a focused allocation towards the real estate sector comes into play. Amplifying real estate exposure make sense right now: not only is real estate historically a good inflation hedge, but it also offers a relatively low correlation to the broader stock market. 

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Real Estate’s Favorable Outlook

In April, Morgan Stanley released insights examining the state of play for the real estate industry. Notably, the Morgan Stanley team pointed out that all the ongoing geopolitical uncertainty is accelerating real estate’s already attractive use case as an inflation hedge. Geopolitical and macro factors aren’t the only thing working in real estate’s favor, either – Morgan Stanley noted that the fundamentals in the real estate sector are also looking increasingly attractive.

“Lower cost of capital, lower prices and constrained supply are creating favorable conditions for recovery,” explained Tony Charles, head of research and strategy for global real assets at Morgan Stanley Investment Management. “That said, performance will vary across regions, sectors and asset types. Motivated sellers, engaged buyers and improved debt availability are setting the stage for a rebound in both transactions and valuations.”

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XLRE: Low-Cost Real Estate Access Through the ETF Wrapper

For those looking to build focused exposure to the real estate sector, the State Street Real Estate Select Sector SPDR ETF (XLRE) could be an attractive option. The strategy invests in companies engaged within the real estate sector of the S&P 500. This includes securities tied to real estate management, development, and REITS.

Thus far, XLRE’s low-cost exposure to the sector has paid off in terms of both return and income. Year to date, the fund’s NAV is up 10.79%, as of April 30, 2026. Meanwhile, XLRE is boasting a 30-day SEC yield of 3.19%, as of May 6, 2026. 

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