REITs Are Back in Vogue as Real-Estate Market Makes a Comeback

Real-estate investment trusts, often thought of primarily as a way to diversify a portfolio, are playing a starring role this year.

The FTSE Nareit All REITs index—the broadest U.S. REIT index, with a market capitalization of $1.4 trillion—had total a total return, including dividends, of 26.05% this year as of July 31, versus 17.99% for the S&P 500 index.

REITs have benefited from inflation concerns, says Todd Rosenbluth, head of ETF and mutual-fund research at CFRA. Real estate is often considered a hedge against inflation.

Low yields in the bond market are also fueling interest in REITs, Mr. Rosenbluth says. REITs are required to pay out 90% of taxable income to shareholders as dividends. The current average dividend yield for the FTSE Nareit All REITs index is 3%.

Finally, the outlook for residential and commercial real estate for the second half of 2021 as the economy continues to emerge from the pandemic also is supporting REITs, Mr. Rosenbluth says.