00:00REITs are real estate investment trusts, so the acronym is REIT, yet the ticker for this ETF,
00:07which invests in REITs, is R-I-E-T. That can be kind of confusing.
00:10Well, we take an income-first approach, so I before E, and as Eric mentioned,
00:15with so much of the income being generated, we focus more towards the small caps, the mid caps,
00:20the preferreds, the mortgage REITs. That's what's kind of pushing that yield number higher.
00:25Did you pick the ticker based on that little phrase you just gave us, or did you come up with
00:32the phrase after you realized people had this question? No, we came in with it, going into that
00:36with that phrase. It was intentional. It's pretty good. It was hardcore. Yeah. We're not here to
00:41vu and shill. We're here to REITs and shill today. All right, well said. I guess the obvious question
00:46here right now, especially on a week in which the Federal Reserve is meeting, is that the market
00:50anticipates a hawkish Fed. That's what we've gotten so far. The odds of a July rate cut are now
00:55one and three. At the very least, they're going to do nothing and we'll be higher for longer.
01:00REITs don't typically do well in a rising rate environment. So what's the case for buying REITs
01:04now? So it would be, but REITs have been doing well in a high rate environment. REITs have been
01:09operating in a high for long environment for so long that it's business as usual. Operating
01:15fundamentals are up, dividends are up, M&A transaction activity is up very large. So management
01:21teams are not going to wait for the Fed. They're going to find ways to unlock value, especially
01:25when you look at valuation between private real estate and public traded REITs. And that's
01:30why you're seeing private equity players and private capital, frankly, chasing a lot of
01:34these REIT deals because they're able to buy these public companies at discounts to net
01:37asset value.
01:38So let's talk about the chart I showed with VNQ. That's what, I mean, believe it or not,
01:43that is the biggest REIT ETF by far. It's a huge hit. It's market cap weighted though.
01:50So you have a couple of stocks that make up a chunk of the weighting. You're more like
01:53equal weighted. So when someone says, well, hey, why don't I just buy VNQ? The performance
01:58is better. What do you say in response to that?
01:59Be my guess, but so much of that weighting is in the top 10 holdings. There is no yield
02:04in those top 10. And that VNQ is driven by names that have been on fire this year, such as
02:09Digital Realty Trust, DLR, American Tower, Well Tower, Prologis, the largest players where
02:15you're really not going to find that much dividend income versus frankly, where the real opportunity
02:19set lies in the small caps or the mid cap space.
02:22So when we think about somebody looking for REIT ETF, what percentage of them are looking
02:28for yield only? They don't even know what these things do. They just want the yield.
02:32We think most of the investor base is when you buy REIT, you buy it for income. I like to
02:37say, when you buy a REIT, you're buying it for the dividend income stream. Anything that
02:41happens with stock price appreciation is the extra cherry on top of the sundae. When
02:45you buy REITs, though, you've got to figure out, is the dividend sound, is net income going
02:49up because net income is that dividend? And so for REITs that have been operating in this
02:54volatile environment that you've been talking about, over the big picture, this is what
02:58dividends have been doing. And when you think about owning REITs over 25, 50 years in a
03:03portfolio is the ballast of that ship, that dividend income is going to compound dramatically
03:08over that course of time.
03:09So it makes it a substitute or an alternative to fixed income. We're looking at allocations.
03:16People don't believe in the 60-40 portfolio necessarily, but I'm wondering how REITs fit
03:20in to someone's portfolio if someone's not all that jazzed about taking a long duration.
03:26So obviously, it depends on where you are in the cycle as an investor. I always like to
03:31say, as soon as your child is born, your grandchild is born, buy them a dividend, a monthly dividend
03:36paying REIT that you can reinvest those dividends. But to directly answer your question, I like
03:41to say that REITs are a great complement towards your fixed income, your BDCs, your MLPs, that
03:45great utilities, that great income package that you can build that allows you to then go play
03:53SK Hynix or Bitcoin or some of this other stuff. It's that safety net that you're looking
03:58for in your portfolio.
03:59I want to bring up generally in REITs. One thing we found interesting, James and my team
04:03did this research. If you look at passive ownership of sectors, REITs is far and away
04:08the most owned by passive.
04:09Why is that?
04:10It's because the smart beta ETFs that go after dividends and yield, they love REITs. So you
04:15end up with more REIT ownership from passive ETFs due to smart beta. Here's a look you can
04:21see here, real estate and utilities, same reason. Utilities also a yield play. What do you make
04:26of that? We've had a couple of cases where there's been REITs where it had more than
04:29half of their shares owned by index funds.
04:32Love that, Char. It's great. And I think it's great because when you think about a typical
04:35REITs, the long-term lease nature that's in place with most of these sectors, five years,
04:39ten years, up into a company like Safehole with a 99-year ground lease, you can track that
04:44dividend income. And so for a lot of these passive players, they know what that dividend
04:48income stream is going to look like over time. We like to think that RIET is a great
04:52compliment to a VNQ because frankly, it's top down, bottom up. And so it's a great hedge
04:57to play both sides of the equation.
04:59How exposed is RIET to data centers? Because that is the big story right now when it comes
05:04to real estate and AI.
05:06Yeah, we definitely have exposure to some of the data center REITs, but I think the other
05:09key part of that is the amount of industrial space that's being developed because of data
05:14centers. So it's almost like they're going hand in hand with each other, that one sector
05:19benefits from the other sector. I still think we're in the early innings when it comes to
05:23the world of data centers, but we have two established, really, there's four established
05:27data center REITs. If you count Blackstone's new REIT that listed here recently, along with
05:31a company called Fermi that listed last year, we're not going to talk about Fermi. But we're
05:36still in the early innings of this game that with so many of these private players that
05:40want to launch data centers, that's great. We have, again, established platforms with a global
05:45footprint that own tons of megawattage of power and properties already, that when you have
05:52established dominant players in the space, they're working hand in hand with local municipalities
05:56like New York or some of these other places to try to get these issues over the hump.
06:01So, you know, I don't necessarily think it's a red flag.
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