Shifting to REITs

Over the past several months, we have allowed cash levels to build in client portfolios to approximately 3 percent. At this juncture, we are deploying this cash to broaden our commitment to Real Estate Investment Trusts (REITs). We have been underweight our REIT asset class for several years as we believed that large-cap domestic equities offered greater value. REITs today provide a better risk/reward than cash, and we think it is prudent to move toward a neutral weighting in REITs.

Why do we like REITs today?

Currently, yield on our REIT strategy is around 3 percent, which is significantly higher than cash and more attractive relative to current Treasury-bond yields.(see chart above).
We believe that over the next few years, many individual REITs are well positioned to increase their dividends by 5 to 7 percent annually.
There has been a huge lack of supply in the real estate space and companies with assets are now benefitting from increased rents.
Public REITs continue to opportunistically take advantage of distressed sellers in this environment.

Though we are increasing our commitment to REITs, our shift does not necessarily reflect enthusiasm toward all real estate categories. At present, two sectors that we find attractive are apartments with strong rent growth and select hotels exhibiting domestic and international growth.

Over the past several years we've continually diversified client portfolios to guard against the inherent risks to the global capital markets. We believe adding REITs to client portfolios at this juncture will increase the overall risk/return profile of accounts.

Ferguson Wellman's Investment Policy Committee is responsible for making the "top-down" decisions that dictate the allocation of capital among asset classes, and for identifying the broad investable themes and sector targets that our analysts and portfolio managers seek to implement in their respective areas of expertise.

The information provided herein is for educational purposes only and should not be construed as investment advice or as an offer or solicitation. Not all securities are suitable investments for all investors; therefore, Ferguson Wellman Capital Management will not necessarily implement any particular strategies discussed herein for all clients. We recommend that you discuss questions regarding your individual portfolio and investment strategies with your portfolio manager.

Disclosures