REITs have been the darling asset class for the last few years, they out performed all other asset classes in 2010, 2011, 2014, 2015 and the first half of 2016. After being up 13.7% through June 30th of this year they have almost entirely wiped out that gain and are about to go negative for the year.
The Vanguard REIT ETF which tracks the MSCI US REIT index is currently yielding 3.92%, not much of a premium over the riskless US 10 year Treasury at 2.35%.
REITs have benefitted from investor’s search (reach) for yield and low borrowing rates on properties. That could be coming to an end with the rise in the 10 year Treasury, a looming rate hike by the Federal Reserve in December, and rising defaults on commercial mortgages.
Buyer beware, we could be looking at a repeat of the Master Limited Partnership (MLP) debacle in the second half of 2015.