REITs are attracting attention from investors for a variety of reasons. For one, it’s looking increasingly likely that the US will avoid a recession which bodes well for occupancy rates, property values, and home prices. Second, the Fed is in the final stages of its rate hike cycle which means interest rates will go from a strong headwind to a mild tailwind especially if inflation continues to move lower. 

Due to weakness over the past year and a half, REITs are quite compelling from a value perspective while also offering juicy yields to investors. For Benzinga, Kevin Vandenboss identifies 2 REITs that investors should consider buying.

He likes SL Green Realty which is an owner and operator of premium Manhattan commercial real estate property. While many areas of commercial real estate like offices and retail may never recover, SL Green is a bet that premium properties will recover - a historically savvy bet. Currently, the stock yields 8.8% and has a stable payout ratio of 59%, indicating a stable dividend.

Another is Medical Properties Trust which focuses on hospital facilities and has properties in 10 different countries, leading to a diversified portfolio. Also, medical facilities tend to be much more stable than residential or commercial real estate especially given an aging population in most parts of the world. Finally, it also has a dividend yield of 11% and a track record of annual dividend increases. 

Finsum: While REITs have been an underperformer for much of the past couple of years, the sector offers juicy yields and tantalizing upside given recent macro developments.

One of the most puzzling developments over the past 18 months is the wide gap between public and private real estate. Many publicly traded REITs are down between 30% and 40% from their highs in 2021, while private real estate funds are flat or have losses in the single-digits. 

There are a variety of theories to account for this disconnect, including expectations of mounting losses in commercial real estate (CRE) given that office occupancy rates are not returning to pre-pandemic levels. However, it’s also fair to note that in recent months publicly traded REITs have outperformed and somewhat shrunk the gap. In Institutional Investor, Hannah Zang covers why many investors are seeing an opportunity in REITs and believe that the market is overreacting to weakness in CRE especially given that it only accounts for 3% of the total REIT market.  

Currently, the cap rate for REITs is 50 basis points higher than private real estate. Historically, this has indicated a buying opportunity in the sector especially as some of the macro headwinds of the sector seem to be dissipating with the vast majority of real estate prices holding steady and the Fed in the final innings of its rate hike cycle. 

Finsum: There’s an interesting divergence between private and public real estate. However, many investors see opportunity in publicly traded REITs and believe that investors have overreacted to macro and CRE issues.

What firm doesn’t need a pick me up; you know, from time to time? Well, you might want to try on a model portfolio for size, according to investmentnews.com.

Addressing part and parcel of the financial picture of a client’s key to helping advisors erect a business. 

Streamlining the management of the portfolio process – yet not to the detriment of client trust or the performance of a portfolio is an approach. One way to make it click is through the use of a model portfolio.

A few ways to go about it:

MODEL PORTFOLIOS FOSTER MORE EFFICIENT RELATIONSHIPS

MODEL PORTFOLIOS OFFER CONSISTENT ANALYTICS

MODEL PORTFOLIOS IMPROVE RELIABILITY

MODEL PORTFOLIOS PROVIDE BLENDED STRATEGIES TO IMPROVE CUSTOMIZATION

Consequently, probably not surprisingly, increasingly, model portfolios are finding their mojo, gaining greater popularity, according to smartasset.com.

The proof’s in the bottom line. According to Morningstar, as of March of last year, assets following model portfolios swelled to $349 billion. Between June 30 of 2021 and March 31 of last year, that’s a hopscotch of an estimated 22%.

The cultivation of talent’s come a long way. Baby.

At its center: succession planning, according to sigmaassessmentsystems.com.

SIGMA – with the intent of providing organizational leaders with a snapshot of what’s unfolding today in succession planning – produced a report on where things stood this year. Several emerging trends were revealed: 

Most organizations are focused on recruiting and retaining staff.

Many organizations recognize that they must keep up with industry innovation.

Many leaders are committed to improving customer experience.

A significant number or organizations want to transform their brand and culture

Interestingly, new financial advisors are setting a high rate of bolting from the industry, according to a Cerulli Associates report, reported financial-planning.com.

The importance of new talent in wealth management is further stoked given the fact financial advisors, who oversee trillions of dollars of assets, are riding into the sunset.

Yet, those making their maiden voyage into the profession aren’t exactly being received with a steaming mocha latte and scone, according to Cerulli, which reported that while 13,169 of new trainees left the industry in the rearview mirror, offsetting the more than 18,000 it picked up,

For SmartAsset, Rebecca Lake CEFP shares some tips for financial advisors when it comes to hiring new employees and building a team. This is usually an indication that an advisors’ business is growing and that she is ready to offload some responsibilities. Often, many advisors wait too long to hire someone given the time and cost involved, however hiring the right people is paramount to helping your practice succeed.

Lake recommends implementing a team structure with small groups working together and responsibilities clearly defined and distributed. This can help people focus on their strengths and gain more expertise with their tasks. For instance, a member can be in charge of outreach to new clients to ensure the practice has a steady pipeline of prospects.

Depending on the size of the firm, teams can be organized differently with 3 common approaches - vertical, horizontal, or hybrid. A vertical team structure allows the advisor to focus on meeting clients and managing portfolios, while other employees provide support and handle other tasks. This is the way that most practices are set up. 

In order to find the best structure for your firm, Lake suggests making it consistent with how your firm is currently organized. For example at a small practice with a sole advisor, a vertical approach is ideal. She also suggests defining key roles for each member, outlining team goals, and selecting appropriate members for each team based on skills, personality, and experience. 

Finsum: Growing a financial advisor practice requires going beyond just client outreach and portfolio management. It requires setting up efficient and scalable systems. 

For ETFTrends, Tom Lydon explains how direct indexing can aid advisors with retaining and recruiting clients. Both of these are integral to growth for any thriving advisor practice while unsatisfactory performance in these areas can compromise success. So, advisors need to apply constant effort in these areas.

With direct indexing, advisors can forge a stronger connection with clients especially those who are more knowledgeable and self-educated. This group is more likely to appreciate the benefits especially in regards to tax savings and greater customization while retaining the benefits of passive investing. 

Direct indexing achieves this because clients will own the actual components of an index in their own separately managed account. However, the components of the index can be adjusted based on the needs or desires of the client. For instance, a client who is passionate about the environment may want to exclude fossil fuel companies from their holdings. These can be replaced with different stocks that have similar factor scores in order to continue tracking the benchmark. 

In terms of retention and recruitment, direct indexing leads to more conversations about a clients’ values, tax situation, and financial position. By optimizing these factors, advisors can add more value for clients and increase their chances of reaching their financial goals. These qualitative benefits are on top of the additional 1 to 2% of alpha that direct indexing adds to portfolios.

Finsum: Direct indexing has many benefits for clients. But an underrated one for advisors is that it can assist with client recruitment and retention.

Regulation Best Interest (Reg BI) was approved in 2019, although enforcement has only picked up this year. The law requires brokers to only recommend products to customers that are in their best interest. Brokers also have to be transparent with customers about any potential conflicts of interest and financial benefits to recommendations they make. 

For Investment Executive, James Langston covers Monmouth Capital Management’s multiple violations of Reg BI which has led to expulsion from the industry from FINRA. Monmouth is being charged with excessive trading of 110 client accounts between August 2020 and February 2023 by 6 company reps, leading to losses of $3.9 million. 

Unfortunately, many of the victims included ‘Gold Star’ families with their investment proceeds coming from death benefits from a family member passing away while serving in the military. 

 In addition to FINRA taking action against the brokerage, the Department of Justice and SEC charged Caz Craffy, a former US Army financial counselor and Monmouth broker, for defrauding clients through excessive trading and risky investing. He also had a blatant conflict of interest given his dual roles as a broker and financial counselor. Overall, he earned $1.4 million in commision from clients with losses of $3.4 million due to bad trades. 

Finsum: FINRA, the SEC, and Department of Justice are pursuing action against Monmouth Capital Management due to violations of REG BI and mismanagement of clients’ funds.

A combination of factors like high rates and weakness in commercial real estate have conspired to push REITs lower over the past year. Yet, many billionaire investors are seeing this weakness as an opportunity to scoop up shares as discussed by Jussi Askola for SeekingAlpha.

He notes that Blackston’s Jon Gray and Steve Schwartzman have bought more than $30 billion of REITs over the last 18 months. Interestingly, they see more value in public REITs than private real estate which makes sense given greater drawdowns.

Similarly, Brookfield Asset Management’s Bruce Flatt has also been aggressively buying REITs and remarked in a recent interview that “I would say one of the great purchases today is real estate securities because you are buying them at a fraction of what you would trade them at in the private sector. REITs that have high-quality assets trade at enormous discounts to the tangible value of their assets".

Starwood’s Barry Sternlicht shares this bullishness as well. In a CNBC interview, he said that “There are some unbelievable bargains in REITs. We are already buying some stuff in the public market because I do think that rates are going down." 

Overall, these investors tend to have a more long-term perspective and have also managed to thrive through multiple cycles. It’s clear that many billionaires see current weakness as temporary and see REITs as a big winner once the Fed starts cutting rates. 

Finsum: REITs have been punished over the past 18 months, but some billionaire investors are growing increasingly bullish on the sector due to compelling value and belief that a positive catalyst is around the corner.

Every industry is dealing with the consequences of higher inflation and interest rates. Private real estate is no exception as construction and financing costs have soared. For Private Equity & Real Estate News, Peter Benson shares how the industry is grappling with these challenges and whether it will start to impact returns. 

Although inflation has been trending lower for the past few months, builders continue to grapple with higher insurance costs especially in certain coastal markets. Many are finding that insurance rates have doubled or tripled in certain cases especially as incidents of extreme weather increase. 

Another headwind has been an increase in property taxes as many local governments are dealing with lower tax revenues. Overall, rents have not increased enough to offset these additional costs, resulting in less income for landlords. Additionally, there is a glut of multifamily units that are coming online in major markets, leading to less opportunity to raise rents. Further, rents are at a historically high level relative to income which is also an indication that they cannot be further increased. 

Many private real estate fund managers are dealing with the challenging environment by prioritizing cash management to ensure that they have enough reserves to get through the current environment and take advantage of dislocations that emerge in the coming months. 

Finsum: Private real estate operators are dealing with a very challenging environment given that rents cannot be further raised, while rates are elevated. Another burden is that insurance costs have doubled or tripled in many cases.

For ETFTrends, James Comtois discusses the pros and cons of direct indexing as opposed to the traditional approach of investing in open-ended funds such as ETFs and mutual funds. Currently, direct indexing is in the midst of a surge in adoption due to technology and providers making it available to a wider swathe of investors beyond only those with a high net-worth. Another factor is increasing familiarity from advisors and clients.

Despite these positive trends, it’s still warped by traditional investing in ETFs and mutual funds which is how the vast bulk of advisors and investors manage their portfolios. While both methods are intended to track the performance of an underlying benchmark, the key difference is that with direct indexing, the investors actually buy the individual holdings of an index.   

This means that investors have an opportunity for more customization based on a clients’ values or personal situation. For instance, a client may feel strongly against investing in companies that manufacture firearms, so these stocks can be excluded and replaced with different stocks that have similar factor scores. 

Another benefit is that direct indexing can lead to tax-loss harvesting opportunities which aren’t available with investing in close-ended funds. Losing positions can be sold and offset gains from other positions, leading to a lower tax bill. This has been proven to result in increased alpha and better performance especially in years with more volatility.

Finsum: Direct indexing is a recent innovation. For certain investors, it is a better option than investing in close-ended funds due to tax-loss harvesting and the ability to customize portfolios.