Real Estate Profits From Market Volatility – Just Look At Reits

Real Estate Profits From Market Volatility – Just Look At Reits

Real estate investing just may be the strategy you need to kick off the new year on a high note. Already, you’ve been flooded with broad predictions for what to expect from U.S. and world markets. Stocks will rise. Stocks will fall. Interest rates will rise. Oil will rise and fall. Russia will crumble. China will take over the world. Cats and dogs will live together … you get the point.

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But let’s pack away the crystal ball and get back to the basics. Based on current market trends, there’s an opportunity I’ve identified that I’m very excited about — an investment in foreign real estate. I expect it to not only put profits in your portfolio in the first quarter, but throughout the rest of 2015 …

This is especially important now. Investing in U.S. markets in 2015 is going to be tough, as market volatility will be the norm this year. That’s great news for the savvy investor, because volatility creates a variety of trading opportunities that can result in massive profits.

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But in the meantime, you’re stuck with a sluggish U.S. stock market that is approaching the last leg in a five-year bull market. In fact, U.S. stocks are poised to underperform in 2015, making it a great time to look overseas for growth.

And the best place to take advantage of that growth is in foreign Real Estate Investment Trusts (REITs). This sweet spot in the market is poised to hand you solid returns and generate a decent yield, possibly earning you a 30%-plus return by the end of the year.

REITs: The Overlooked Outperformer

With the Fed on the cusp of raising rates for the first time since 2009, you can expect a lot of volatility swinging around interest-rate sensitive investments in the U.S. such as bonds, master limited partnerships and REITs.

But that hasn’t stopped REITs from being one of the best performing sectors since 2009.

It may seem hard to believe that the S&P 500 Index (SPX) has rallied more than 200% from the 2009 bottom. But the iShares Real Estate 50 ETF (FTY), which invests solely in REITs, trounced that by posting a 329% increase over the same time frame, after accounting for dividends.

And the sole reason REITs have been a top performing sector is low interest rates.

The average yield for an REIT is about 3.5%, compared to the average S&P 500 yield of less than 2% and the 10-year Treasury note yield that is just above 2%. So, for the stability and liquidity REITs offer, there’s really no competition.

Plus, REITs have seen strong stock appreciation since 2009, which means their yields were even higher before the hunt for yield began. In 2009, the average U.S. REIT yield was closer to 10%.

I know that’s a far cry from the 3.5% today, but all you have to do is look across the pond if you want to find similar yields, and jump on the price appreciation that the hunt for yield creates.

Get Ahead of the EU’s QE

While Janet Yellen & Co. are set to increase interest rates (albeit ever so gradually), Mario Draghi (president of the European Central Bank) and his posse are clearing the way for their own version of quantitative easing — which tells me investors’ hopes for yield throughout the euro zone is going to be in the stock market, because you’re just not going to find significant yield in fixed income.

And, just as U.S. investors pushed local REITs higher, European investors are going to chase yield in the same sector — REITs.

One REIT that is poised to benefit is Altarea SA (Euronext: ALTA).

REITs are not about the glitz and glamor of what the company does. It simply invests in property and manages stable real estate investments. This particular REIT covers commercial and residential property, mainly in France.

As you will notice, this doesn’t trade in the U.S. You need to grab it on the Euronext Paris exchange. Not all U.S. brokers will have access to this market, but many of the larger ones will (brokers such as Charles Schwab, Fidelity, and E*Trade).

These local stocks, trading in the heart of the euro zone, are going to be the biggest beneficiaries of Draghi’s version of QE and the euro zone’s ultra-low interest-rate policy for several years to come.

The REIT trades in a fairly loose band, drifting from about €130 to €140, but I believe it is about to break out. Given the demand for yield in the region, Altarea will head north of €160 this year. That’s about 24% above its current price. Add a 7.5% dividend yield to that — more than double U.S. REITs — and we are looking at a 30%-plus return in just a year.


Chad Shoop
Editor, Pure Income

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