Markets

TIAA-CREF Real Estate Securities Rides High on a Hot Market

This fund currently favors single family home rentals and data centers.

Real estate stocks have been on a roll. Over the past 12 months, the MSCI US REIT index gained 30.4%, which beat the 29.3% return of the S&P 500. REITs trade like stocks, but like bonds, are sensitive to interest rate swings, especially over the short term. That has been a boon to real estate securities as the stock market has soared and interest rates have stayed low. (Rates and bond prices tend to move in opposite directions.)

Will rising rates end the good times for REITs? Over the medium to long term, that’s not likely, say David Copp and Brendan Lee, managers of TIAA-CREF Real Estate Securities (symbol TCREX). That’s because rates tend to rise when the economy is doing well, says Copp, and “a strong economy is better for real estate than higher rates are bad, because revenue is growing faster than interest expenses are rising.”

Copp and Lee own a diversified portfolio of REITs and real estate securities, including real estate brokers and developers, homebuilders, property-management companies, and financial firms that make or service mortgage loans. “We’re not focused on the highest dividend payers,” says Lee. Instead, the team homes in on investments “that we think will experience the best growth in underlying cash flow and generate the highest price appreciation.” Top holdings include wireless communications infrastructure company American Tower, and Prologis, a logistics-focused real estate firm and member of the new Kiplinger ESG 20, which includes our favorite environmentally focused stocks.

Copp and Lee aren’t afraid to buy in weak subsectors if the price is right, as their stake in Simon Property Group, the largest owner of shopping malls, illustrates. Over the past year, retail REITs “were priced like people were never going to shop at malls anymore, and that’s simply not the case,” says Lee. Lately, the managers have favored firms benefiting from the economic reopening, es­pecially apartments and regional malls. As those investments gained in recent months, they took some profits and redeployed the cash into single-family home rentals and data centers.

Over the past three years, the fund’s annualized return of 15.5% beat 90% of its peers.

graphic of REIT fund performance

As of October 8, 2021. Source: Morningstar Direct.

Most Popular

Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is heading back toward its March highs. What’s driving the resurgence, and will gas prices go down anytime soon?
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math
retirement planning

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math

The math isn’t as tough as you might think. It all starts with dividing your assets into three different buckets.
May 23, 2022

Recommended

Stock Market Today (5/26/22): Retail Roars Back, Markets Build Positive Momo
Stock Market Today

Stock Market Today (5/26/22): Retail Roars Back, Markets Build Positive Momo

Discount retailers Dollar General (DG) and Dollar Tree (DLTR) were at the forefront of a second straight session of broad market gains.
May 26, 2022
What You Need to Know About Mutual Fund Returns
mutual funds

What You Need to Know About Mutual Fund Returns

A guide to the many ways these popular investments measure their performance.
May 26, 2022
9 Great Alternative-Strategy Funds for Volatility
mutual funds

9 Great Alternative-Strategy Funds for Volatility

These alternative-strategy funds can offer some shelter from stock and bond market turmoil.
May 26, 2022
Stock Market Today (5/25/22): Nasdaq Jumps as Fed Minutes Fail to Flame Fears
Stock Market Today

Stock Market Today (5/25/22): Nasdaq Jumps as Fed Minutes Fail to Flame Fears

Investors acted with relief Wednesday at the Federal Reserve's seeming flexibility on the future of rate hikes and other policy tightening.
May 25, 2022