2 Consistent and Solid REIT Funds
Diversification and income benefits can make REITs attractive even if rates head higher.
David Kathman: Real estate mutual funds have had a rough time lately. They lost almost 7% on average in the first quarter of 2018, which was one of the worst returns of any Morningstar category. Anticipation of higher interest rates is one big reason for that, since REITs tend to be rate-sensitive, and also retail REITs have been hammered by the threat of online retail.
This kind of short-term bump in the road isn't a good reason for investors to jump ship, though, because these funds can play an important role in diversifying a portfolio, given that real estate tends not to be very highly correlated with the broader stock or bond markets. They can also be a decent source of income, since REITs have to pay out at least 90% of their profits as dividends.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.