Wall Street money managers are all about weightings in their portfolios, and currently most are underweight the real estate investment trust (REIT) arena, on average by about 3.3%. That could all change on August 31 as REITs will become their own S&P Global Industry Classification or GIC. Managers who mirror the index weightings may be forced to add shares to their portfolios, and that could mean some serious buying.
A recent Jefferies research report doubts that managers actually would equal weight the sector, but that each additional 1% they do add could represent almost $47 billion in buying pressure. That could mean as much as $150 billion in total buying if they come close to an equal weight.
Jefferies acknowledges that REIT valuations are high due to the buying by income investors who have used them as a bond proxy, and the report points to eight stocks that could be targeted. Here we stick with the three large cap companies they list as top picks. All are rated Buy.
Essex Property Trust
This is a top apartment REIT, and the stock recently was upgraded to buy at Jefferies. The analysts think the already very strong West Coast business is getting even stronger for the company. Essex Property Trust Inc. (NYSE: ESS) acquires, develops, redevelops and manages multifamily residential properties in selected West Coast markets. Essex currently has ownership interests in 239 apartment communities with an additional 12 properties in various stages of active development or in the initial leasing phase.
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