By Catherine Yoshimoto, director, product management
For a brief period, it appeared that the extended low yield environment of today might at last be coming to a close. But the Fed’s about-face to a more dovish stance on interest rates has investors again searching for yield, giving a boost to income-producing investments. Two asset classes that have benefited in particular are REITs and Infrastructure, and the combination of them—Infrastructure REITs—have performed notably better than broader REIT and equity indexes.
Infrastructure REITs are the largest property sector in the FTSE Nareit All Equity REITs Index, comprising 14.7% of the index. With seven constituents, the sector includes REITs that own and manage infrastructure real estate. FTSE Russell defines infrastructure companies as those that own, manage or operate structures or networks used for the processing or moving goods, services, information and data, people, energy and necessities from one location to another. As such, infrastructure REITs’ property types include fiber cables, wireless infrastructure, telecommunications towers and energy pipelines.
I’ve previously written about the current low interest environment being a tailwind for both infrastructure and REIT performance. But as shown below, when infrastructure and REITs are brought together, the impact of the ongoing hunt for yield has been particularly pronounced.
As the above graph illustrates, while all of the broad REIT and equity indexes have recently seen positive performance, Infrastructure REITs have posted the highest returns. Over all standard time periods, FTSE Nareit Infrastructure REITs outperformed the broader FTSE Nareit All Equity REITs, Russell 3000 and FTSE Global All Cap Indexes.
The strong performance of the Infrastructure REITs sector can also explain the difference in performance between the FTSE Nareit All Equity REITs Index and the FTSE Nareit Equity REITs Index. What differentiates the two indexes is the All Equity version includes both Timber and Infrastructure sectors, while the Equity version does not. As a result, the All Equity index was buoyed by the Infrastructure REITs outperformance, while the Equity index fell comparatively short in its absence.
This is one among countless examples of how index construction can impact performance. For more information on how the FTSE Nareit US Real Estate Index Series is constructed, please see our methodology overview.
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