Avalonbay, Douglas Emmett are Right REITs to Own Says American Century Manager

Steve Brown, portfolio manager for the American Century Real Estate Fund (REACX), said investors should stop watching the Fed for a moment and start looking at REIT fundamentals.

REIT shares have been under pressure this year because traders see the sector as a yield alternative set to be slammed by the impending Federal Reserve rate hike. Steve Brown, portfolio manager for the American Century Real Estate Fund (REACX), said investors should stop watching the Fed for a moment and start looking at REIT fundamentals. 'Demand is still greater than supply in commercial real estate and we are seeing good earnings growth and good dividend growth among the REIT sector,' said Brown. The American Century Real Estate Fund (REACX), which sports a trailing twelve month yield of 2%, is down 2.8% thus far in 2015, according to fund-tracker Morningstar, compared to a 4.7% drop in the iShares U.S. Real Estate ETF (IYR). As for individual REITs, Brown is bullish on Avalonbay Communities (AVB), which has seen its shares rise over 8% so far in 2015. The Arlington Virginia-based owner of multifamily homes pays a yield of 2.8% and Brown said it will by buoyed by a big improvement in jobs and family formations. 'They are getting rent growth of 5% to 6% when inflation is only 2%,' said Brown. 'They are focused on the core cities like Boston, New York, Washington, San Francisco, Portland and Los Angeles where the job growth is and where the young people are moving to.'