Janus Henderson U.S. Real Estate ETF Q2 2024 Commentary
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U.S. Real Estate ETF Performance – USD (%) (as of 06/30/24)
|
Cumulative |
Annualized |
||||||||
|
Returns |
2Q24 |
YTD |
1 Yr |
3 Yr |
5 Yr |
10 Yr |
Since Inception (06/23/21) |
||
|
ETF @ NAV |
-0.81 |
-1.85 |
2.16 |
-1.25 |
– |
– |
-1.57 |
||
|
ETF @ Market Price |
-0.94 |
-1.89 |
2.25 |
-1.25 |
– |
– |
-1.57 |
||
|
FTSE Nareit Equity REITs Index |
0.06 |
-0.13 |
7.79 |
0.30 |
– |
– |
-0.09 |
|
Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Market returns are based upon the midpoint of the bid/ask spread at 4:00 p.m. Eastern time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Ordinary brokerage commissions apply and will reduce returns. Returns quoted are past performance and do not guarantee future results; current performance may be lower or higher. Investment returns and principal value will vary; there may be a gain or loss when shares are sold. For the most recent month-end performance call 800.668.0434 or visit Products – US Advisor. Expense Ratios (% as of most recent prospectus): Gross 0.65, Net 0.65 |
Investment environment
U.S. equities achieved record highs during the second quarter. Signs of a weakening economy and easing inflationary pressures bolstered investor hopes that interest rate cuts may arrive later in the year. A boom in a handful of technology stocks, led by artificial intelligence, and some robust corporate results also boosted investor confidence and drove U.S. indices to record levels. Performance for U.S. real estate investment trusts (REITs) was muted during the quarter, initially selling off as expectations for the number of interest rate cuts were scaled back from three to one but then recovering as inflation data eased. Sector performance diverged notably, with lodging, industrial, and office all underperforming, posting negative double-digit returns in the case of lodging and industrials, the latter on the back of weak demand trends as tenants work through excess space taken during the pandemic. In contrast, apartments and healthcare posted solid results. Apartments were boosted by merger-and- acquisition activity in the space and by slightly more robust demand trends versus expectations due to healthy renewal activity through peak spring leasing season, as move-outs to buy first-time homes remain at historic lows given elevated mortgage rates. Following encouraging early signs from spring leasing, storage REITs also outperformed, suggesting the heavy pricing discounts offered over the past year may be beginning to stabilize.
Portfolio review
Among the top contributors to relative performance were positions in multi-family REIT UDR and healthcare REITs Sabra (SBRA) and Welltower (WELL). UDR saw better sequential rent growth driven by renewal pricing while also benefiting from a lower turnover rate relative to peers in the sector. Sabra and Welltower continue to benefit from senior housing fundamentals that remain strong and moderating expense pressures as labor availability has improved.
Conversely, Mexican industrial property company Vesta detracted from performance following the surprise results of the Mexican election in which the Morena party won a supermajority in both houses, heightening fears of undemocratic constitutional changes; this drove the overall Mexican equity market lower. Kilroy Realty (KRC) detracted due to a lack of meaningful positive news in its U.S. West Coast markets. Data center landlord Equinix (EQIX) also underperformed, although an independent investigation has alleviated concerns after a short report targeted the company.
During the quarter, we introduced a new position in a Sun Belt landlord that we believe offers differentiated exposure to smaller tenants and geographic concentration to a market characterized by stronger fundamentals. We also added a new position in a U.S. mall owner because we believe their new management team can offer fresh leadership with new ideas on operations, balance sheet management, and capital allocation, potentially paving the way toward better performance and improved investor perception.
Within residential, we added a U.S. manufactured housing owner following a period of underperformance. The owner’s manufactured housing parks represent some of the best assets in U.S. REITs, underpinned by stable demand from an aging population and very low levels of new supply. We sold out of a leading single-family property owner, leasing operator, and build-to-rent developer that also represents a compounding business model but with higher capital expenditures and a full valuation, in our view. In storage, we initiated a relative-value-driven change in our exposure, selling our holdings in a large self-storage facility operator following a period of strong outperformance and adding one of its larger peers, which we also expect to benefit as pricing discipline returns to the industry.
Manager outlook
While the private commercial real estate market can dominate media headlines and is typically slower to adjust reported values to reflect higher rates, the listed market has already reacted given its real-time pricing. Increased confidence that we have reached peak interest rates is therefore likely to prove a key moment for the listed property sector, which continues to trade at a discount to private market values.
Importantly, public REITs have continued to offer reliable and growing income streams, supported by strong balance sheets, more exposure to high-quality properties in areas of structural growth, and astute management teams. From pricing levels that we believe reflect today’s economic reality, these characteristics could potentially reward investors with current income and growth over time.
Portfolio
|
Top Holdings (%) |
Fund |
|
Equinix Inc |
9.66 |
|
Public Storage (PSA) |
7.41 |
|
Welltower Inc |
7.40 |
|
Prologis Inc (PLD) |
6.63 |
|
Sabra Health Care REIT Inc |
5.10 |
|
AvalonBay Communities Inc (AVB) |
4.92 |
|
CubeSmart (CUBE) |
4.63 |
|
First Industrial Realty Trust Inc (FR) |
4.07 |
|
Equity LifeStyle Properties Inc (ELS) |
3.68 |
|
UDR Inc |
3.62 |
|
Total |
57.12 |
|
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from Products – US Advisor. Read it carefully before you invest or send money. Returns include reinvestment of dividends and capital gains. OBJECTIVE: Janus Henderson U.S. Real Estate ETF (NYSEARCA:JRE) seeks total return through a combination of capital appreciation and current income. The opinions are as of 06/30/24, are subject to change and may not reflect the views of others in the organization. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. Holdings are subject to change without notice. There is no assurance the stated objective(s) will be met. Investing involves risk, including the possible loss of principal and fluctuation of value. Real estate securities, including Real Estate Investment Trusts (REITs),are sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, supply and demand, and the management skill and creditworthiness of the company. Additionally REITs could fail to qualify for certain tax-benefits or registration exemptions which could produce adverse economic consequences. Derivatives can be more volatile and sensitive to economic or market changes than other investments, which could result in losses exceeding the original investment and magnified by leverage. Concentrated investments in a single sector, industry or region will be more susceptible to factors affecting that group and may be more volatile than less concentrated investments or the market as a whole. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance. Funds classified as “nondiversified” can take larger positions in a smaller number of issuers than “diversified” funds, which could lead to greater volatility. Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss. FTSE Nareit Equity REITs Index reflects performance of the U.S. equity real estate investment trust market, excluding timber and infrastructure. Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment. Janus Henderson Investors US LLC is the investment adviser and ALPS Distributors, Inc. is the distributor. ALPS is not affiliated with Janus Henderson or any of its subsidiaries. Janus Henderson is a trademark of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc. |
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