Greet the REITs
The S&P 500 has a new sector, and it’s not doing that well.
Real estate companies are a small part of the market, but until recently, they were a strong one. The Real Estate Investment Trusts that make up the sector return a lot of cash to shareholders and are taxed at a low rate.
The sector is dominated by Simon Property Group, an Indianapolis-based company that owns more than 100 shopping malls and manages another 200 across North America and Asia. For years, REITs performed better than the broader stock market or other asset classes like bonds and gold. But a combination of concerns such as interest rate movements, property valuations and new supply has recently weighed on the sector, according to industry body NAREIT.
Real estate stocks slipped in the third quarter, and so far this year the sector has only risen 2 percent, compared to a 5 percent gain for the entire S&P 500.
Emerging market stocks have overtaken REITs as the index’s top performing sector over the last year, and banks and health care companies are the only sectors to perform worse than REITs so far in 2016. As of Wednesday’s close, real estate investment trusts were the worstperforming sector of the S&P 500 this year, just barely behind health care stocks.