Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
Blog Home
Bob Carey
Chief Market Strategist
X •  LinkedIn

  The Relationship Between Rising Interest Rates And Equity REITs
Posted Under: Sectors
Supporting Image for Blog Post

View from the Observation Deck  

  1. With the exception of 2007 and 2008 (financial crisis), the annual total returns posted by the FTSE NAREIT All Equity REITs Index (index) have been positive, even in those years in which interest rates have risen (highlighted in red). 
  2. From 12/31/99-12/29/17, the index generated an average annual total return of 11.65% (not shown in table), according to Bloomberg. Year-to-date through 2/7/18, however, the index is down 8.86% on a total return basis. 
  3. The primary catalyst for the sell-off in equity REITs this year has been rising interest rates. The yield on the benchmark 10-year Treasury note (T-note) has increased 43 basis points, from 2.41% on 12/29/17 to 2.84% on 2/7/18 (not shown in table). That is a notable move in a relatively short period of time.
  4. Historically, REIT prices have tended to decline as interest rates begin their ascent, but then recover over time provided the cause of the increase in rates is stronger economic activity. We believe that is the case underway early in 2018.
  5. Since 1994, there have been seven instances, including 5/21/13-8/19/13, where fears of rising interest rates caused REITs to decline by an average of around 12%, according to Jonathan Litt, founder and CEO of LandandBuildings, a registered investment advisor specializing in publically traded real estate and real estate related securities. The sell-off from 5/21/13 through 8/19/13 reached 18.65%, as measured by the FTSE NAREIT All Equity REITs Index. In the six occurrences prior to 2013, average index returns subsequent to the declines over the next 30 days, 90 days and 12 months were 6.8%, 9.2%, and 28.7%, respectively. The rationale for the strong rebound in returns is linked to the inflation hedge characteristics real estate has traditionally offered.
  6. Investors should note that one of the drivers of tax reform, passed into law on 12/22/17, was to cut the federal corporate tax rate from 35% to 21%. The hope is that the lower tax rate might translate into higher U.S. economic growth. For those  investors potentially considering equity REITs now that they are cheaper relative to the start of 2018, the premise for owning them is that REIT landlords could be in a position to increase their rents when leases come up for renewal. If so, that could potentially lead to higher dividend payments to REIT investors.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The FTSE NAREIT All Equity REITs Index is a free float adjusted market capitalization-weighted index that includes all tax qualified REITs listed on the major U.S. exchanges.

Download a PDF of this post, please click here.
Posted on Thursday, February 8, 2018 @ 1:13 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email

23 Times in 9 Years
Sector Performance Via Market Capitalization (Year-to-Date)
S&P 500 Index Top-Line Growth Estimates
A Snapshot Of How Stocks Have Performed So Far In This Millennium
Stellar Earnings
2017 Was Another Banner Year For Passive Fund Flows
The Passage Of Tax Reform Could Provide A Boost To Industrials
The Bull Market & Trump Rally
The U.S. Dollar Lost Ground In 2017
A Snapshot Of Fixed-Rate Bond Yields & Total Returns
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2023 All rights reserved.