On a year-to-date basis, the FTSE Nareit All Equity REITs Index is up 3.5% and the FTSE Nareit Equity REITs Index is up 5.4%. Nine of 12 property sectors are positive year-to-date, led by self-storage with a total return of 11.0%. REITs, however, underperformed broader markets in February, as the FTSE Nareit All Equity REITs Index fell 5.9% and the FTSE Nareit Equity REITs Index declined 4.8%. Broader markets dropped as well, as the Dow Jones U.S. Total Stock Market and Russell 1000 posted respective total returns of -2.3% and -2.4%.
January’s optimism gave way to pessimism in February as inflation remained high and investors grappled with the prospect that rather than slowing the pace of the recent monetary tightening cycle, the Federal Reserve may re-accelerate its hikes and rates may stay higher for longer than previously expected. The Federal Reserve remains committed to its goal of getting core PCE inflation back to 2% and has dismissed any suggestion that target may be raised. The yield on the 10-year Treasury rose 50 basis points in February to close the month at 4.0%.
The chart above shows the 10-year Treasury yield compared to total returns year-to-date through the end of February, which were:
- All Equity REITs: 3.5%
- Russell 1000: 4.2%
- Dow Jones U.S. Total Stock Market: 4.5%
A deeper look at year-to-date returns by sector offers more detail about REITs’ performance during February.
The chart above shows that self-storage was the sole sector posting positive returns in February, rising 1.6%, followed by specialty at -2.5%, and residential at -3.6%. Infrastructure lagged all other sectors, with a total return of -11.7%, followed by office at -10.8, and lodging/resorts at -8.2%. Mortgage REITs declined as well, with a total return of -8.2%. Commercial financing mREITs returned -7.0% and home financing mREITs returned -8.9% for the month.