REITs Defy Doomsayers Again

Investor demand for REITs was strong in August, especially among institutional investors flocking to the four real estate ETFs.

Collectively, the iShares Cohen & Steers Realty Majors (ICF Quote), Dow Jones U.S. Real Estate Index (IYR Quote), streetTRACKS Wilshire REIT Fund (RWR Quote) and the Vanguard REIT Index Fund (VNQ Quote) saw $478 million of inflows in August, compared with an outflow of $374 million in July, according to TrimTabs Investment Research.

Meanwhile, regular mutual funds, which are where individual investors are more likely to put their money, saw just a $3 million inflow, roughly unchanged from July.

What this shows is that "individuals are not chasing prices and the professionals are," says Carl Wittnebert, director of fund flow research with TrimTabs.

After posting very strong second-quarter earnings, REITs' operating results are expected to remain solid. Fears about rising interest rates have been eased by the persistent low yield on the 10-year Treasury.

A bigger issue for REITs may be how the broader stock and bond markets perform. REIT stock prices may weaken if the overall markets improve and investors shift money out of the sector, Pauley says.