THE REAL ESTATE INVESTMENT TRUST SECTOR (for another way to invest in real estate!)

As I am somewhat of an introverted investment advisor (at least while outside the boxing ring or hockey rink!), I seldom seize the opportunity to ‘blow my own horn’ on various investment picks I’ve made for clients over the years. I am however going to take this opportunity to end that streak today….!

 A couple of years ago, I did some in-depth research and analysis on the Canadian real estate market, and opted to choose this sector for the benefit of a vast selection of income-oriented clients I look after, as well as numerous Tax-Free Savings accounts that I have under my management

 The XRE shares are index shares available here in Canada (also often referred to as ETFs or i-shares) which mimic the Canadian S&P/TSX Real Estate Investment Trust sector. Many of my clients who own these shares were looking for exposure to the sector itself while minimizing their risk of investing in a single company or stock. I refer to this as stock-specific risk. These XRE shares also paid a very handsome dividend of 7-8% two years ago when I started to establish positions for various clients.

 In actual fact, the S&P/TSX Capped Reit Index has shown a year-to-date total return of 33.9%, compared to the -6.4% total return shown by the 10-year Government of Canada bond. 

 Due to lower rates and the fact that Reits would not be subjected to Federal Finance Minister Jim Flaherty’s Income Trust taxation in 2011, the sector has performed more than admirably and many clients are showing handsome double-digit returns, and have also been privy to a quarterly dividend.

 Other clients with me currently getting exposure to this sector are also doing so through owning shares of individual firms such as RioCan Reit and H&R Reit, two trusts which pay monthly distributions and whose share prices are all hitting 52-week highs.

 I still continue to like this sector and to add to it, but am a little more cautious as valuations have increased. That being said, as long as rates remain low in Canada, I will continue to favour Canadian Reits, especially for clients seeking income over and above what bond rates are paying.

Incidentally, this is where interest rates currently lie, according to the Canadian ‘yield curve’, represented by the various benchmark bonds issued by our own Government of Canada:

 2-year               1.211%

5-year               1.931%

10-year             2.774%

30-year             3.429%


About Realty Drama