The Right REIT ETFs For An Inverted Yield Curve World

There was plenty of talk about the inverted yield curve last month, the scenario where 10-year Treasury yields creep above the yields on two-year notes, and that chatter is usually ominous in nature because the inverted yield curve has often been a reliable recession indicator.

What Happened

The inverted yield curve doesn't have to be all gloom and doom. Some historical data points indicate there are opportunities when the scenario occurs, including with real estate investment trusts, which often outperform a year after the yield curve inverts.

As it is, thanks to lower interest, REITs and the related exchange traded funds are soaring this year. The Vanguard Real Estate ETF VNQ is higher by 23.67% this year, but for investors willing to get tactical with REIT ETFs, there are better opportunities in a post-inverted curve environment.

Why It's Important

A recent note by the real estate team at Jefferies highlights some of the REIT opportunities after the yield curve inverts.

“Their note cites REITs with long lease durations, including those whose portfolios focus on health care or gaming, as sectors that do well in such a scenario,” according to Barron's. “It also likes 'secular demand growth sectors' that include data centers and industrial properties.”

Enter the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF SRVR and the Pacer Benchmark Industrial Real Estate SCTR ETF INDS, two of this year's best performing real estate ETFs. SRVR and INDS are up 37% and 33.40%, respectively, this year, crushing VNQ in the process.

SRVR has been boosted by soaring demand for data storage real estate, which is being propelled by companies increasing needs for cloud and cybersecurity services as well as the move to 5G communication services. While that makes SRVR sound like a growth play in a defensive sector and it is, data storage REITs have some defensive traits.

“Near-term concerns of a potential global economic slowdown should not impact data center operators in most US markets directly,” according to DataCenter Knowledge. “In fact, the digital economy appears more attractive to investors, given recent global events and GDP trends.”

What's Next

As has been widely noted this year, INDS is the best way to tap the real estate angle in the booming e-commerce market, meaning this real estate ETF has a slew of favorable tailwinds. The latest online retail data from the Commerce Department confirms as much.

“Total retail sales for the second quarter of 2019 were estimated at $1,361.8 billion, an increase of 1.8 percent(±0.2%)from the first quarter of 2019,” according to the Commerce Department. “The second quarter 2019 e-commerce estimate increased 13.3 percent (±1.6%) from the second quarter of 2018 while total retail sales increased 3.2 percent(±0.5%) in the same period. E-commerce sales in the second quarter of 2019 accounted for 10.7 percent of total sales.”

Related Links:

An Interesting Internet ETF

Call On Quality With This ETF

Posted In: Long IdeasREITSector ETFsTop StoriesTrading IdeasETFsReal Estate

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.