From a technical standpoint, the growing divergence between REITS and equities may offer investors an opportunity to increase allocations to reits in their portfolios.
While listed Real Estate Investment Trusts (REITs) share structural similarities with traditional equities, only approximately 2.5% of underlying securities in the Dow Jones US Real Estate Total Return Index (DJUSRET) overlap with those of the S&P 500 Total Return Index (SPXT)1. This sector-specific concentration exposes listed REITs to unique economic factors, such as leverage and interest rates, in ways that differ from those affecting broader equity indices. Over the last 30+ years, the differences have led to some notable performance divergences between listed REITs and equities. We believe that if historical trends continue, REITs may offer opportunities to enhance portfolio returns. Further, with listed REITs having underperformed equities by about 26% since the end of April 2022, we believe there is no time like the present to take action.
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