Fykes
says his company actively picks REIT stocks based on growth sectors like health
care, as well as including many REIT preferred securities. This cherry-picking
approach has helped the company outperform the index. Michael Schatt,
portfolio manager of the Phoenix-Duff & Phelps Real Estate Securities Fund,
has also consistently beaten the NAREIT Index. He says that REITs, given their
low correlation to many other assets, are not a “hot sector play, but
a stable part of a diversified portfolio.”
But will REIT stocks stay strong?
“As long as interest rates stay low, yields on REIT stocks will be
extraordinarily attractive,” says Samuel Zell, chairman of Equity Office
Properties in Chicago, the country’s largest REIT, with 700 properties. “I see
nothing on the horizon to change that.” Zell predicts that, within 10 years,
publicly traded REITs will own 60 percent of all investment-grade real estate.
Direct Investments
While REITs aggressively acquire property, many
individual investors and small syndicates are pursuing higher potential returns
by investing directly. The downside to direct investment, of course, is the
liquidity issue. Unlike a REIT, once you are in, getting out is not always easy.
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