Jefferies Downgrades Real Estate Sector to Equal Weight

August 22, 2016 7:50 AM EDT

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Jefferies downgrades Real Estate from Overweight to Equal Weight, saying they've seen core and value managers narrow their underweights ahead of GICS breakout and the group is very expensive.

Strategist Steven DeSanctis highlighted:

  • We are closing in on the S&P GICS sector mapping breakout of Real Estate and core and value managers substantially narrowed their underweights to the group.
  • We can find better value elsewhere, as valuations remain stretched for the group.
  • Our Real Estate Investment Trust analysts, Tayo Okusanya and George Hoglund, recently downgraded the Storage and Apartments sectors.

Commenting on why they are not Underweight the sector, he highlighted:

  • Dividend yield is still much better than the 10 year yield with the difference standing at 2.45% versus the long-term average of 1.40%.
  • In a low return, higher volatility world, this group tends to hold up well.
  • We have started to see a pick-up of M&A inside this group.

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