- This article explains how real estate trusts (fibras) can serve to diversify an investment portfolio and details their performance in the current context of high interest rates.
- It is aimed at managers, investment advisors, and real estate investment funds who want to discover the benefits of real estate trusts.
- At FlexFunds, we offer the possibility of securitizing real estate trusts to expand client reach. Contact us for more information!
In today’s financial markets, multiple investment vehicles are traded, each with its own characteristics. Among the most comprehensive are real estate trusts, which may help with portfolio diversification.
What are real estate trusts?
Specifically, real estate investment trusts (fibras) are financial vehicles that offer direct exposure to real estate assets in a diversified manner.
They primarily focus on financing the acquisition and/or construction of high-quality properties such as commercial offices, industrial plants, shopping centers, and conventional housing.
It is worth noting that, unlike Real Estate Investment Trusts (REITs) that are traded in the United States and are independent companies, Fibras are autonomously managed assets.
How are they structured?
The uniqueness of real estate trusts lies in their structure as representative titles or certificates, which are acquired by investors seeking ownership of a basket of various real estate assets to gain a benefit.
Specifically, these trusts give property owners seeking financing an Ordinary Participation Certificate. These are then issued on the stock exchange as Stock Certificates, that can be operated by various types of investors.
At this point, FlexFunds plays a crucial role by offering managers, developers, and real estate investment funds the possibility to streamline and improve the distribution of their strategies through the Flex Private Program.Remember, for more information about the program, you can contact our team of specialists.
Why diversify an investment portfolio?
Real estate trusts can be very important for the proper construction of an investment portfolio because they allow for diversification.
Investing directly in real estate properties is very costly and a very illiquid alternative. However, real estate trusts provide the necessary exposure without these two drawbacks.
Thus, investors can achieve the price stability of a real estate asset and its cash flow from rent in a very accessible and efficient manner.
In this way, portfolios can be developed with a wide variety of assets (stocks, bonds, commodities, properties, etc.) to reduce overall volatility and, therefore, risks.
“Diversifying across different asset classes, industries, and geographies can help reduce the number of correlated investments. This can help protect against market downturns”, explain experts from BlackRock.
Real estate trusts and interest rates
To tackle inflation, the United States Federal Reserve (Fed) started raising interest rates and took them from almost 0% to the range of 5.25%-5.50% in just over a year.
Consequently, real economy prices effectively began to cool in June 2022, they grew at an annual rate of 9.1%; in May 2024, they advanced “only” 3.3% year-on-year.
For this reason, and considering other economic variables, the Fed has already indicated that it will start to ease its monetary policy, which will boost economic development and the real estate market.
In this context, it is expected that real estate trusts will gain even more prominence and be more attractive among portfolio managers.
“Although REITs have typically underperformed during Fed tightening cycles, they have outperformed both private real estate and equities in the periods following rate hikes. With the Federal Reserve at or near the end of its rate hike cycle, this bodes well for REIT performance in 2024,” estimated experts from Nareit.
It is worth remembering that FlexFunds is a strategic ally when it comes to distributing real estate-related assets such as real estate trusts. Its asset securitization program allows managers to gain access to international investors and, hence, capital raising for their real estate projects. Through securitization, the asset manager can convert an asset or group of assets into exchange-traded products (ETPs), enhancing their distribution on global private banking platforms.
If you are the manager of a real estate fund and want to improve distribution, FlexFunds solutions can be an excellent alternative. Contact one of our experts to identify which solution best suits your needs.
Sources:
- https://www.blackrock.com/americas-offshore/en/education/portfolio-construction/diversifying-investments
- https://www.reit.com/news/blog/market-commentary/2024-reit-performance-outlook
- https://www.bankrate.com/investing/good-time-to-buy-reits
