The Real Estate Select Sector SPDR (XLRE), an ETF that owns big real estate firms like mall operator Simon (SPG) and apartment complex companies Equity Residential (EQR) and AvalonBay (AVB), has fallen 3% since Trump defeated Hillary Clinton.
The declines stand in sharp contrast to the rest of the market, which has enjoyed a Trump rally, led by financial and healthcare stocks, construction companies and retailers. Powered by SmartAsset.com So why are real estate investment trusts, or REITs as they are commonly known, struggling?
REITs pay big dividends. And with bond yields surging since the election, partly due to expectations that Trump will need to rack up debt to make his $1 trillion infrastructure spending plans a reality, high yielding stocks like REITs are no longer attractive.
Investors are betting REITs and other big dividend payers will be less attractive in an environment where bond rates are going up. That's why other big dividend payers, most notably utilities and consumer staples companies, have also lagged the market lately.
But is the market getting this wrong?
Related: Trump's family plan to cut business conflicts falls short
Yes, many investors have flocked to REITs solely for their dividends. But the market may be underestimating the possibility that Trump will look to take care of his own, so to speak.
Of course, Trump will need to be extra careful to avoid the appearance of any conflicts of interest. It doesn't help that his daughter Ivanka is married to real estate developer Jared Kushner. And both are on his transition team.
Trump has already faced criticism about what he plans to do with his massive real estate holdings. Some think Trump should sell his investments outright, but he is planning to place them in a trust to be controlled by his adult children.
These issues aside, REITs should benefit from Trump stimulus.
Karin Ford, senior real estate analyst for MUFG Securities Americas, met with several REIT executives at an industry conference in Phoenix just after the election. In a report to clients, she noted that real estate leaders were upbeat.
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