REITs Lure Investors Seeking High Yields

For the past 10 years, through two recessions, Michael Agran has dedicated 20 percent of his investment portfolio to real estate investment trusts. The Los Angeles tax lawyer has no plans to diminish his stake even as the prospect of an economic slowdown looms. “If there’s a recession, where am I going to put my money?” Agran says. “Am I going to put it in the bank and earn a quarter of a percent a year? Not going to do that.”

That’s a common refrain in this era of near-zero interest rates. People have piled into REIT stocks because they are “so starved for income,” says Larry Glazer, a managing partner at Mayflower Advisors in Boston. One indication: Investors have added a net $3.7 billion to mutual funds that invest in U.S. real estate investment trusts this year, the most new money since 2006, according to a Citigroup Global Markets report. At the same time, they withdrew about $70 billion overall from funds that invest in domestic stocks, according to estimates from the Investment Company Institute. “REITs are attracting attention because of their income, the dividend yield, and the fact that REITs do own hard assets, which offer inflation protection,” says Philip Martin, REIT strategist at research firm Morningstar. So far this year, REIT stocks have declined 2 percent as of Sept. 12, according to the Bloomberg REIT Index, compared with a drop of 7.6 percent for Standard & Poor’s 500-stock index.