Glenn Mueller, University of Denver professor and real estate investment strategist at Dividend Capital Group, joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.
Mueller was asked whether he still considers REITs to be low-volatility investments.
“They are much less volatile than the overall marketplace,” Mueller said.
He explained that REITs have historically been low-volatility investments. That changed temporarily during the financial crisis as a result of exchange-traded funds (ETFs), according to Mueller.
“That really created a lot of volatility and brought REIT stocks up to almost as high in volatility as the overall market place,” he said.
Once the market returned to normal trading levels, leveraged ETFs shrunk and lost much of their influence on pricing, according to Mueller.
Mueller also discussed the hedging characteristics of REITs as more of the REIT market is incorporated into index funds. Mueller observed that in the past, REIT investing was mainly restricted to individual investors and focused real estate investment funds.
“Now, you’ve got all these indexed funds and ETFs investing in REITs,” he said. “That makes them move a little bit more with the market.”
However, the increased correlation to the broader market hasn’t affected their overall benefits to investment portfolios, according to Mueller.
“REIT stocks are higher-dividend and much more stable in their earnings than most other companies, so from that standpoint, I think they are definitely a necessary part of any investor’s portfolio as a separate real estate investment.”
Lastly, Mueller discussed key economic indicators that REIT investors should watch over the remainder of the year.
“Number one, absolutely key, is employment growth,” he noted. “Since the second quarter of 2010, when employment turned positive, demand for real estate has gone up and we’ve seen occupancies and also rents in all the major property types move up.”
Investors should also watch gross domestic product (GDP) data, Mueller said, which are particularly important for the hotel and industrial sectors.