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The Real Estate Select Sector SPDR Fund ETF (NYSEARCA: XLRE ) fell 2.83% in the second quarter after a weak April month, while the S&P 500 Index rose 4.1%.
The fund fell in April as market participants sharply lowered their expectations for interest rate cuts following hawkish rhetoric from the Fed, with XLRE down 8.63% for the month.
The next two months were more optimistic but not enough to make up for April's declines: the index rose 5.17% in May and 0.76% in June as economic data released rekindled hopes of interest rate cuts.
XLRE recorded inflows of $69.01 million in the second quarter, which is up compared to $484.73 million in the previous quarter.
Real estate services company CoStar Group (CSGP) was the biggest loser, down 23.25% since the end of the first quarter, while healthcare REIT Ventas (VTR) stood out as a winner, up 17.73%.
Subsector Performance
Property management and development saw the biggest decline among subsectors, dropping 16.98% from the previous quarter, followed by industrial REITs, which saw their value fall 13.76%.
Healthcare REITs and residential REITs were the winners, increasing 11.37% and 8.75%, respectively.
Top 5 S&P 500 Real Estate Stocks
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 Stocks
CoStar Group (CSGP) – 23.25% Weyerhaeuser (WY) – 20.94% Prologis (PLD) – 13.75% Host Hotels & Resorts (HST) – 13.06% SBA Communications (SBAC) – 9.41%
Analysts' predictions
“The REIT sector has opportunity and growth potential. Office and apartment space remains the largest player and has had some serious issues there. But there is significant growth to be seen in areas like healthcare, industrial, multifamily and data centers,” said Seeking Alpha author Sungarden Investment Publishing.
“It's certainly possible that interest rates could fall, but I'm not confident that they will continue to fall. Or, they may continue to fall, but for the 'wrong reasons' due to an economic downturn. If that is the root cause of the decline in interest rates, then the stock market as a whole is not doing well,” the author wrote, upgrading XLRE's investment rating from “sell” to “hold.”
“XLRE is a core fund for investors seeking exposure to real estate companies. XLRE focuses primarily on equity REITs but adds exposure to smaller real estate related companies to complement the portfolio,” said South African contributor REITer's Digest, giving the ETF a buy rating.
On average, SA analysts rate the fund a Buy.
What the quantitative indicators show
SA's Quant Rating system rates Real Estate Select Sector SPDR Fund ETF a “Hold” with a score of 2.78 out of 5.
The system assigns the ETF a C+ for momentum, an A for expenses, a C- for dividends, a D+ for risk, and an A+ for liquidity.