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The Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE) fell 2.83% in Q2 on the back of a weak April, while the broader S&P 500 index gained 4.1%.
The fund saw a pullback in April as market participants significantly dialed back their interest rate cut expectations amid a hawkish Fedspeak, with XLRE retreating by 8.63% for the month.
The next two months were relieving, but not enough to square up the April losses. The index increased by 5.17% in May and 0.76% in June, after the incoming economic data reignited rate cut hopes.
XLRE saw inflows worth $69.01M in Q2, compared to $484.73M a quarter ago.
Real estate services company CoStar Group (CSGP) was the biggest loser, declining 23.25% from Q1-end. Meanwhile, health care REIT Ventas (VTR) stood out as the winner, advancing 17.73%.
Subsector Performance
Real Estate Management & Development dropped the most among subsectors, declining 16.98% from the previous quarter. Industrial REITs followed, losing 13.76% of value.
Health care REITs and residential REITs were the winners, increasing by 11.37% and 8.75%, respectively.
Top 5 S&P 500 real estate performers
- Ventas (VTR) +17.73%
- Iron Mountain (IRM) +11.73%
- Welltower (WELL) +11.57%
- AvalonBay Communities (AVB) +11.49%
- Essex Property Trust (ESS) +11.19%
Bottom 5 S&P 500 real estate performers
- CoStar Group (CSGP) -23.25%
- Weyerhaeuser (WY) -20.94%
- Prologis (PLD) -13.75%
- Host Hotels & Resorts (HST) -13.06%
- SBA Communications (SBAC) -9.41%
What Analysts Expect
“There are opportunity and growth potential within the REIT sector. Office and apartment space remains the largest player, and there have been some serious issues there. However, areas like healthcare, industrial, multifamily and data centers are seeing meaningful growth,” said Seeking Alpha author Sungarden Investment Publishing.
“While I do see potential for rates to come down, I am less confident they will stay down. Alternatively, they may continue to fall, but for the “wrong reasons” due to a recession. If that is the root cause of the decline in rates, equities don’t look as good in general,” the author said, upgrading XLRE to Hold from Sell.
“XLRE is a core fund for investors looking for exposure to real estate companies. XLRE focuses primarily on equity REITs, adding exposure to smaller real estate-related companies to complement the portfolio,” said SA contributor REITer’s Digest with a Buy rating on the ETF.
On average, SA analysts rate the fund as Buy.
What Quantitative Measures Say
SA’s Quant Rating system grades The Real Estate Select Sector SPDR Fund ETF as a Hold, with a score of 2.78 on a scale of 5.
The system assigns to the ETF C+ for Momentum, A for Expenses, C- for Dividends, D+ for Risk and A+ for Liquidity.