CI First Asset REIT – RIT. The active REIT ETF that’s beating the benchmark.

The real estate sector has been battered by the pandemic. Retail and Office REITs have been particularly hard hit as social distancing and health and safety-related concerns have resulted in seismic shifts in work from home and online shopping. And it’s possible that the shift in how we work and how we shop is permanent. That said, this is obviously not the end of an important sector. And perhaps it will take more active management to navigate the REIT waters. CI First Asset REIT – RIT has been Canada’s best performing REIT over the last 5 years and more. And yes that fund is actively managed.

For those new to the REIT concept it is a way for you to be a landlord without all of the hassle of fixing taps and roofs. And you don’t have to chase down tenants for rent monies. REIT stands for Real Estate Investment Trust. You are invested in hard tangible assets.

REITs can play an important role in a portfolio. Real estate is a distinct asset class for diversification and REITs can provide generous income as well. A REIT is compelled by their structure to pay out 90% of their taxable earnings as dividends.

From MoneySense, what you need to know about REITs.

The major ETF providers in Canada all offer REIT ETFs, from iShares to Vanguard, to BMO to Horizons and more. Those providers replicate different indices. CI First Asset REIT – RIT is actively managed.

Here is a link to the CI First Asset REIT – RIT.

There’s room for active management in the REIT space.

I had the pleasure of speaking with David Barber, Vice President, National Accounts at CI First Asset. The core theme is that there may be some advantages in the sector for active management in the Canadian REIT space. There are inefficiencies that active managers can take advantage of. Access to new issues and as well as considering a wider variety of names that may not be part of any index may also be beneficial.

Also, in the REIT space, many investors are searching for different attributes when they invest in a company or ETF. Many will be investing for that yield. The CI First Asset REIT takes a total return approach.

From David …

Year to date to Oct. 23, RIT has a total return of -13.9% versus -22.3% for the S&P/TSX Capped REIT Index, or 8.4% outperformance. Broadly that is due to a higher weighting in industrial REITs, and a lower weighting in retail REITS, plus the flexibility of owning names that are not in the index or are not Canadian. Holdings that helped the fund outperform that are not index names include Tricon Residential, Prologis (US listed), Americold (US listed), and Equinix (US listed).

The big names are weighing on passive indices. David also added …

Some of the large index names have performed very poorly this year (Riocan, Allied Properties, H&R, First Capital). While we may own these names, we have a much smaller weighting than the index, and generally RIT has a much more diversified portfolio, with 35 holdings typically versus 20 or so for the index. Our top 10 holdings are typically just over 40% of the fund, while the top 10 in the index would be approximately 70%.”.

Here’s the recent sector allocation …

And the recent top ten holdings.

The REIT return comparison.

Here’s the outperformance of RIT vs its REIT ETF competitors. BMO’s ZRE, an equal weight strategy and the iShares XRE, which is market capitalization weighted. Both are passive index-based.

We see much better risk adjusted returns as well. RIT has delivered lesser drawdowns and lesser volatility (Stdev) standard deviation.

The charts and tables are courtesy of portfoliovisualizer. com.

And what may be more impressive and telling is the calendar year performance.

We see the CI First Asset RIT held up much better in the down years of 2013 and 2020. In 2015 when the benchmark passive indices were negative, RIT was in positive territory.

Here’s the historical returns of RIT vs the benchmark. We see consistent outperformance in every period.

Updated returns to November 2021

Here is an updated REIT ETF comparison table.

We also see more favourble risk-adjusted returns for the CI First Asset REIT.

David had also suggested that the connections and expertise of the manager gives an added advantage. Lee Goldman of CI Signature Global Asset Management has managed the fund since 2007 when it introduced an active mandate. Kate MacDonald, who came from Morguard, joined him to co-manage the fund in 2013. The fund began as an equal weight passive fund in November of 2004.

Managing close to $4 billion in real estate spread across a few mandates and being part of the larger CI Signature team that manages close to $50 billion gives them great access to management teams, research, and importantly deal flow. Equinix, mentioned above, did an equity raise in the spring at $665 per share. They put in an order along with some other Signature funds and got one of the best fills in a very oversubscribed offering. The stock is now trading near $820. As part of the CI Signature group, RIT benefits from manager scale advantages, which often means good allocations.”

The CI First Asset REIT – RIT Dividend.

The ETF pays a monthly dividend. The 12-month trailing yield is 5.27%.

The fees? The MER for RIT is .78%.

This active REIT deserves consideration. They’ve certainly backed up the ‘active argument’ with consistent out performance and lower risk. I like the idea of a ‘Canadian’ REIT being able to go south of the border for a few names. Many Canadians are not likely to also add a US REIT. They can get that added diversification in the CI First Asset REIT – RIT, in Canadian dollars.

You may include this REIT ETF in your ETF model portfolio.

You may also consider RIT for an ETF portfolio for retirement.

I’m happy to share this with readers. What do you think? Got REITs? We’ll see you in the comment section.

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Dale