Maxiphoto
Real estate stocks gained from last year but underperformed S&P 500, given the recent rate hikes. Now with rate cuts expected in 2024, the stocks stand a chance to bounce back.
The Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE), which tracks the S&P 500 real estate sector, rose ~8% in 2023. The ETF underperformed the S&P 500 index, which increased by ~27% during the year.
Performance 2023
XLRE had a net inflow of $373.51M. Here is a look at the sector’s fund flows data for the year, according to the data solutions provider, VettaFi:
Top movers of 2023
- Gainers:
- Diversified Healthcare Trust (DHC) +482.10%
- Opendoor Technologies (OPEN) +284.65%
- Landsea Homes (LSEA) +155.18%
- Redfin (RDFN) +141.49%
- Forestar Group (FOR) +126.68%
- Losers:
- FLJ Group (FLJ) -98.46%
- Green Giant (GGE) -98.15%
- Wheeler Real Estate Investment Trust (WHLR) -97.84%
- Harbor Custom Development (OTC:HCDIQ) -97.32%
- Gaucho Group Holdings (VINO) -95.26%
What Analysts Expect
Real estate has underperformed throughout the recent rate hiking cycle. As inflation appears stalled and rate expectations soften, we think real estate could bounce back significantly, SA analyst PropNotes said in a recent research note.
SA author JR Research calls real estate a beaten-down sector that may surface as an attractive option next year. Risk/reward will be increasingly more challenging as Wall Street becomes more constructive. Stock-picking skills will likely be crucial as the market seems to have already priced in a more constructive Federal Reserve at the current levels. Particularly, investors are likely to assess whether office landlords could avoid a wave of defaults.
On REITs, SA contributor Chetan Woodun said that investors should focus on total returns instead of merely looking at dividend yields.
Meanwhile, UBS places real estate in the least preferred sectors. Citi’s recommendation for the sector is market weight, with a broadening emphasis.
What Quantitative Measures Say
Seeking Alpha’s Quant Rating system gives The Real Estate Select Sector SPDR Fund ETF a Buy rating, with 3.69 score.
The ETF has a strong liquidity grade of A+ and momentum grade of B+. Notably, the ratings system sees risk as a threat and assigns the ETF a grade of D+ in this category.
