Core Insights - The ALPS Active REIT ETF has surged 10.4% year-to-date through mid-February, indicating a significant recovery for real estate investment trusts (REITs) after a decline of 0.68% in 2025 [1] - REITs are now outperforming equities by nearly 10% year-to-date, reversing a trend where they lagged behind equities by approximately 10% over the past five years [1] - The recovery is attributed to a reset in property values and changing market conditions, with REITs currently trading at about a 20% discount compared to private real estate funds [1] Market Conditions - The broader REIT market offers a dividend yield of 3.98%, significantly higher than the S&P 500's yield of 1.09% [1] - The REIT market, excluding the health care sector, is trading at a 21% discount to net asset value, presenting an opportunity for investors [1] - A major factor in the REIT recovery is the decline in new construction, with industrial supply down 70% and apartment supply down 30% from their 2023 peaks [1] Investment Strategy - The active management approach of the REIT fund focuses on high-demand areas, such as data centers, which are performing well due to their support for AI infrastructure [1] - The fund maintains a significant allocation to health care at 17.7%, benefiting from earnings growth in senior housing [1] - The office component of the REIT universe has decreased to just 3%, allowing the fund to avoid major exposure to distressed office properties [1]

Core Insights - The real estate investment trusts (REITs) and related ETFs did not perform well in the previous year despite the Federal Reserve's three interest rate cuts, but there is potential for improvement by 2026 [1] Group 1: Market Outlook - The assessment of REITs' future performance is based on strong fundamentals, including robust acquired funds from operations (AFFO), net operating income (NOI), and same-store net operating income (SS NOI) outlooks [2] - Active management through the ALPS Active REIT ETF can enhance the chances of success for investors in the real estate sector [2] Group 2: REIT Structure and Benefits - REITs operate similarly to mutual funds by pooling capital for investments, focusing exclusively on real estate assets such as office buildings, shopping malls, apartments, and warehouses [4] - The REIT structure allows for exemption from corporate income taxes if at least 90% of taxable income is distributed to shareholders as dividends, making them appealing for high-yield investments [5] - Active management in REITs helps avoid dividend cuts and access real estate names with better long-term distribution growth potential [6][7] Group 3: Investment Considerations - REITs offer high income potential and liquidity compared to traditional real estate investments, attracting everyday investors [8] - However, they are sensitive to interest rate changes, which can affect property values and investment yields, and their obligation to distribute most income limits reinvestment opportunities [8]

Core Viewpoint - The real estate sector, particularly real estate investment trusts (REITs), is expected to rebound in 2026, driven by factors beyond Federal Reserve assistance, with potential benefits for ETFs like the ALPS Active REIT ETF [1][2]. Group 1: Market Performance and Historical Context - The real estate sector has underperformed the broader market for four consecutive years, leading to valuation discounts that are the widest since the global financial crisis [2]. - Historical patterns indicate that after three years of underperformance (as seen from 1997 to 1999), the sector experienced six years of outperformance [2]. Group 2: Sector Composition and Opportunities - The real estate sector, while small in the S&P 500, consists of various sub-groups that do not move uniformly, suggesting opportunities for actively managed REITs [3]. - Actively managed funds like the ALPS Active REIT ETF can target specific areas of opportunity, such as data center and industrial REITs, which are expected to show strength in 2026 [4]. Group 3: Demand Trends and Growth Drivers - Demand for data centers remains strong, with leasing momentum increasing, particularly in tertiary markets due to supply constraints in primary markets [5]. - The anticipated acceleration of AI demand in 2026 is expected to favor primary metro markets, impacting data center deployments [5]. - Mall and shopping center REITs are also viewed positively, with tight supply and strong lease backlogs expected to support net operating income growth [6]. Group 4: Earnings Growth and Market Outlook - Malls are currently trading at a premium compared to their five-year average, with strong earnings growth projected for FY26, particularly for Class A and primary metro-exposed assets [6].

Core Viewpoint - The real estate sector and related ETFs have underperformed in 2025, but there are compelling reasons to consider REITs for investment in 2026, particularly through actively managed ETFs like the ALPS Active REIT ETF [1][2]. Group 1: Performance and Growth - As of December 9, 2025, the largest ETF dedicated to real estate was barely positive year-to-date, indicating a lack of excitement among investors [1]. - Despite disappointing performance in 2025, REITs have shown solid operational performance with year-over-year net operating income (NOI) growth of 5.2% and same-store NOI growth of 2.8% as of the third quarter [4]. - More than 60% of REITs reported positive year-over-year NOI growth, and over 50% had gains in same-store NOI, showcasing the sector's resilience [4]. Group 2: Balance Sheet Strength - REITs have maintained well-structured balance sheets with low leverage, which has been underappreciated by investors [3]. - The emphasis on fixed-rate debt and longer terms to maturity has limited REITs' exposure to rising interest rates, highlighting their focus on long-term investments [5]. - Actively managed funds like the ALPS ETF can quickly access REITs with superior balance sheets compared to index-based rivals [4].

Core Insights - The article emphasizes the advantages of active management in the real estate investment trust (REIT) sector, suggesting that it can outperform passive strategies over the long term [1] Group 1: ALPS Active REIT ETF - The ALPS Active REIT ETF, which will celebrate its five-year anniversary in February, is highlighted as a viable option for investors, especially given the current strong balance sheets and positive trends in funds from operations (FFO) metrics within the real estate sector [2] - The ETF offers a solid dividend yield of 3.12% and provides flexibility through active management, which can help investors identify which areas of the real estate sector are attracting professional asset allocators [3] Group 2: Sector Exposure - The ALPS ETF has a significant allocation of 19.48% to healthcare REITs, marking it as the second-largest subgroup weight within the ETF [4] - Telecommunications is noted as the most overweight sector, with investments at 135% of its index weight, while the office sector has shifted from underweight to overweight for the first time since early 2020 [5] - The ETF's largest subgroup exposure is to specialized REITs, which includes data center landlords, indicating a connection to the AI trade [6] Group 3: Shifts in Real Estate Management - Active real estate managers are increasingly shifting their focus towards lodging and retail landlords, both of which are represented in the ALPS ETF, with retail REITs making up 14% of the portfolio [7] - The lodging/resorts sector has nearly reached parity with its index weight, now at 99%, while retail and industrial sectors remain underweight at 76% and 80% of their index shares, respectively [8]

Core Insights - Real estate stocks are underperforming despite two interest rate cuts by the Fed, indicating a potential opportunity with actively managed ETFs like the ALPS Active REIT ETF [1][2] Performance Metrics - The ALPS ETF shows strong fundamentals, particularly sturdy balance sheets, which may position REITs for growth opportunities in 2026 [2][3] - REITs reported a significant increase in funds from operations (FFO), reaching $21.0 billion, a 17.3% year-over-year increase, with nearly two-thirds of REITs showing FFO growth [5] - Net operating income (NOI) for REITs rose by 5.2% year-over-year, with 62% of REITs reporting increases, suggesting a more optimistic outlook for the sector [6] Occupancy Rates - Average occupancy rates for REIT-owned properties stood at 93.0%, with retail leading at 96.9%, followed by apartments at 95.7%, and industrial at 94.5%. The office sector lagged behind at 85.3% [7]

Core Insights - The real estate sector, despite being one of the smallest in the S&P 500, encompasses various subgroups, including commercial real estate (CRE) which has faced challenges due to declining office occupancy rates post-COVID [1][2] - Experts suggest a potential resurgence in CRE, which could positively impact ETFs like the ALPS Active REIT ETF (REIT) [2][4] - The ALPS ETF is actively managed, allowing for a more responsive approach to market opportunities compared to passive funds, and it offers diversification across multiple real estate subgroups [3][6] Investment Thesis - CRE's struggles may serve as a catalyst for REIT and related funds, especially if the Federal Reserve initiates a credible monetary easing strategy [4] - Real estate is viewed as an attractive investment due to its income potential, low correlation with other asset classes, and inflation-hedging properties, particularly in a macroeconomic environment characterized by uncertainty and higher interest rates [5][7] - Active management is deemed essential for capitalizing on signs of a CRE recovery, with a selective investment approach recommended [6] Portfolio Benefits - REITs provide dependable income, inflation-fighting characteristics, and reduced correlation to traditional stocks, which is significant for investors heavily invested in mega-cap growth stocks [7] - Real estate can enhance a portfolio's risk-adjusted returns by offering diverse and less correlated return streams, influenced by unique supply and demand dynamics and lease structures [8]