REIT ETFs draw inflows as rate-hike odds rise
US investors are buying REIT ETFs even as odds of a Federal Reserve rate hike this year rise. VNQ has gained 9% this year with over $911 million of inflows in three months, while SCHH is up 12% with $111 million of inflows last month.
American investors are piling into Real Estate Investment Trust (REIT) ETFs, even as odds that the Federal Reserve will hike interest rates this year jump. The Vanguard Real Estate ETF (NYSE: VNQ ) has jumped by 9% this year, while the smaller Schwab US REIT ETF (NYSE: SCHH ) has risen by 12%. VNQ and SCHH ETFs Have Had Strong Inflows This Year In addition to their modest returns, these REIT ETFs are seeing substantial inflows this year. VNQ, the biggest fund in the industry, has had over $911 million in inflows in the last three months and $2 billion in the last 12 months.
3 billion. Similarly, the SCHH ETF has had $111 million inflows in the last month and over $2 billion in the last 12 months. 2 billion in assets under management. These funds have done well in terms of inflows and price despite the rising odds that the Federal Reserve will hike interest rates this year.
These odds jumped on Polymarket and Kalshi after the US released strong nonfarm payrolls jobs data. 1%. Inflation has remained above 2% in the last five years, a trend that may continue because of the ongoing US-Iran war that has pushed diesel prices to a record high. The ongoing US-Canada trade war will also boost inflation since the two countries have a close trade relationship.
Read Also: Jensen Huang's Net Worth Up $36 Billion as Nvidia Stock Eyes Surge to Record High REITs Tend to Underperform in High Interest Rate Environment In theory, REIT companies tend to underperform the market in a high interest rate environment. That’s because these companies rely on debt to finance their acquisitions and operations. As a result, higher rates often have an impact on their returns. One reason why REIT stocks have done well is that some have exposure to the booming artificial intelligence industry.
The most notable ones are Digital Realty (NYSE: DLR ), Equinix (NYSE: EQIX ), and Iron Mountain (NYSE: IRM ). These firms have seen a substantial demand in the past few years as data center spending has soared. At the same time, REIT stocks have jumped because of the ongoing hedging against AI risks. This is the idea that value companies will outperform the market if the AI bubble bursts as some key analysts like Michael Burry and Ray Dalio have predicted.
This also explains why the Schwab US Dividend Equity (NYSE: SCHD ) ETF has become the biggest dividend ETF in the world. Read Also: Micron and SanDisk Stocks Rebound as Investors Bet on AI Boom, Cheap Valuations Source: Shutterstock