Investors in Canadian REITs favor niche sectors after rally

Fri Sep 23, 2016 4:47pm EDT
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By John Tilak

TORONTO (Reuters) - Investors in Canadian real estate investment trusts (REITs) say they are looking to niche sectors like industrials, multifamily housing and senior housing, given the group's strong run in 2016 and the longer-term risk of increases in interest rates.

Canadian REITs, popular with yield-hungry investors because of their regular payouts, have gained 13 percent this year, helped by a sustained period of low interest rates.

"They're a touch more expensive since the start of the year, but they're pretty reasonable versus the broader market," said Wilson Magee, portfolio manager at Franklin Templeton Investments, referring to shares of both U.S. and Canadian REITs.

Magee favors REITs serving industrial, office and some types of retail customers. Industrial REITs have exposure to the rise of e-commerce companies, such as (AMZN.O: Quote), that need warehouses to ship products.

Canadian REITs took a hit in the summer over worries about the prospect of U.S. interest rate hikes, which could hit yield-sensitive investments globally. The Federal Reserve is expected to raise interest rates by the end of the year.

"The market is priced for a December rate raise. If that changes, there could be a selloff," said John Stephenson, president of Stephenson & Co Capital Management.

The money manager's holdings include retail focused REITs like RioCan (REI_u.TO: Quote) and Slate Retail (SRT_u.TO: Quote), as well as WPT Industrial REIT (WIRu.TO: Quote).

Other Canadian industrial REITs include Pure Industrial AAR_u.TO, Dream Industrial (DIR_u.TO: Quote) and Granite GRT_u.TO.   Continued...

A jogger runs along the seawall in Stanley Park with the city skyline in the background in this June 24, 2003 file photo. REUTERS/Andy Clark/Files