Chart Of The Day - Retail Investor REIT Allocations

Retail investors are refusing to invest in REITs - omen or opportunity?

Refusing REITs: Yesterday I shared a chart on Twitter (well, what is now called “X”, but as I’ve been on it since 2009 I still call it Twitter) — it showed fund managers reporting the most significant underweights to REITs since 2008 (…you know, real estate blowing up the world’s financial system 2008). But it turns out they are not alone, retail are also shunning REITs, with the implied allocations to REIT ETFs by US investors tracking at the lowest level on record.

• First a technical note: this chart shows the “market share” of REIT ETFs (assets in REITs vs all ETF assets) — which loosely translates to the implied portfolio allocations to the sector (and is basically confirmed by other survey data).

• Second, just to pre-address; this chart will show declines in allocations simply by virtue of other ETFs gathering more assets or putting in better price performance, but then that’s also kind of the point — if this one goes down it means investors are either actively or passively pivoting away from REIT ETFs as an investment relative to other alternatives (because they don’t see it as a good opportunity).

• As to implications, we always want to pay attention when a chart or indicator shows an extreme, and this is definitely an extreme. From my work, REITs as a group are not really cheap yet in terms of absolute valuations (albeit no longer expensive), and still face real challenges and macro headwinds — but at this point everyone seems to already understand this and have adjusted accordingly.

• So you might argue at this point if REITs simply avoid 2008-style apocalypse (when REITs fell ~75% top-to-bottom(!) [which compares to declines of just over 30% last year for US REITs]), it could be an interesting contrarian bull setup…

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Callum Thomas
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