Weak Economy Could Benefit REITs

6/29/2011 | By Allen Kenney

The sputtering U.S. economy actually could benefit the domestic REIT market, according to Steve Brown, senior portfolio manager and head of global real estate for American Century Investments.

In a REIT.com video interview at REITWeek 2011: NAREIT's Investor Forum at the Waldorf=Astoria in New York, Brown discussed his outlook for U.S. REIT stocks, as well as a new fund from his company.

Noting that recent data on hiring, consumer confidence and economic activity have been "modest," Brown said the generally lackluster economic climate could make REITs more attractive to the investment community.

"I think if we continue to have this modest and slow economic recovery, coupled with low interest rates, I think U.S. REITs could deliver outstanding results relative to the S&P 500, because, again, we're experiencing recovering fundamentals in commercial real estate," Brown said. Brown also said his firm is projecting dividend growth this year of roughly 8 percent to 10 percent. Furthermore, if rates on 10-year Treasury bonds continue to fall, that should enhance REITs' attractiveness to investors as well.

Brown also offered some information on American Century's latest investment product, an actively managed international fund, the American Century Global Real Estate Fund (ARYWX). The fund launched on May 1 and is being run out the firm's New York office, with support from American Century's London and Hong Kong offices.

Brown said demand from American Century's institutional and pension fund clients drove the creation of the new global fund. "They've really accepted global real estate as part of their asset allocation or investment decisions," he said.

The diversity of opportunities abroad makes a global fund appealing, according to Brown.

"There are some regions of the world where we're seeing the countries hike or increase the interest rates to slow down the economic growth and to fight inflation, whereas other regions, such as the united states, are nowhere near raising interest rates because of the modest current levels of economic growth," Brown said.

In particular, developing countries hold promise in the current environment, according to Brown.

"Some regions, such as Brazil or China, are experiencing a lot of consumer growth," he said. "Again, you can look at some types of real estate, such as retail, that are benefiting even though it's an inflationary environment. They're benefiting from an absolute growth of consumer spending because of the population demographics in some of those regions."