Billion Real Estate ETFs Surge

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(Bloomberg) – Rampant real estate prices have forced investors to invest in exchange-traded funds that track industry profits.

Sector ETFs are in the best month of inflows since 2014, adding nearly $ 3.9 billion, according to data compiled by Bloomberg.

The BlackRock iShares US Real Estate ETF (IYR) has already raised $ 2.5 billion in June, making it the best month ever. Another BlackRock fund, the iShares Global REIT ETF (REET), is approaching its best month of inflows since 2017.

Historical stimulus from central banks around the world and an accelerating economic recovery are pushing prices up in all corners of the real estate market, fueling what some fear is becoming a bubble. As workers begin to return to the office, shoppers return to stores, and restaurants begin to fill up, the demand for a wide range of decorum grows.

“The returns in the real estate sector have been significant,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “Real estate is a sector that is closely tied to the recovery in the US economy as Covid begins to fade.”

Many of the products in this category, which are heavily invested in real estate investment funds, outperform the general indices. The Vanguard Real Estate ETF (VNQ) and BlackRock IYR funds each grew 20% this year, up from 13.6% for the S&P 500.

Mohit Bajaj, director of ETFs at WallachBeth Capital, said some of the inflow is also related to the pursuit of profitability at minimum rates.

“It looks like the Fed may raise rates, but not anytime soon, so real estate and housing companies should bode well in the face of lower interest rates,” he said.

Issuers rush to launch new products to capitalize on the boom. Janus Henderson Group launched an actively managed US Real Estate ETF (JRE) earlier this week, and American Century recently applied to participate in the Avantis Real Estate ETF under the ticker AVRE.

“They had lower returns, better profits and higher inflation in the second quarter,” said John Augustine, chief investment officer at Huntington National Bank. “When it comes to real estate, it’s kind of a triple disadvantage.”

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