Why real estate stocks could outperform

Two Fidelity managers explain why REITs could hold up better than some other sectors amid volatility.

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"Humans live in a built-up, physical world where houses, apartments, and offices are part of our everyday lives, and the rent or mortgages on these buildings need to be paid, driving steady cash flow for many REITs," says Mark Snyderman, who along with Bill Maclay, manages Fidelity® Real Estate Income Fund (FRIFX).

For this reason, the managers think some real estate investment trusts (REITs) could hold up better than others, and perhaps better than some other parts of the market, in an economic downturn.

Secondly, Snyderman and Maclay believe that once market volatility eventually subsides, the cash flow produced by many real estate securities could look attractive relative to Treasury bond yields, which have been pushed near all-time lows amid a global flight to safety in US government debt.

Some segments of the real estate market can indeed be more volatile than others, they say. The spread of the coronavirus that causes COVID-19 has hurt prospects for real estate investments tied to malls and hotels, for example.

However, for much of the past year, Snyderman and Maclay have underweighted the REITs of malls, shopping centers, hotels, and resorts.

"Within real estate, we tend to focus on investments with a track record of producing steady cash flows," according to Snyderman.

Learn more about these managers and their fund
Mark Snyderman and Bill Maclay are portfolio managers of Fidelity® Real Estate Income Fund.

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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

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