The topic of comeback real-estate markets hit the mainstream media’s radar earlier this year as rising homes sales and prices led many to call the start of the recovery.
Yet, for stock-market investors, finding the best way to capture gains from real estate’s phoenix moment wasn’t so easy.
Homebuilders’ stocks were up big early in the year, with one popular homebuilder ETF (NYSE: XHB) up 22% by mid-May. However, that was the best it could muster after rising interest rates in early summer put a lid on the rally.
The fund is still up for the year, albeit only 17%, which puts it about 10 percentage points below the S&P 500’s year-to-date return.
Real estate investment trusts (REITs) also began the year showing much promise. An all-encompassing REIT fund (NYSE: VNQ) gained 19% by mid-May before suffering the same fate as homebuilders’ stocks, only worse. This fund is now showing a year-to-date return of exactly 0.03%.
Meanwhile, private equity firm Blackstone Group (NYSE: BX) has done far better. It’s up more than 75% this year. Here’s a chart showing the performance of Blackstone relative to homebuilders and REITs.
The question now becomes: “Will it last?”
I think Blackstone has the legs to do well in 2014, based on very strong numbers revealed in the firm’s recent quarterly earnings report.
Specific to its real-estate business, Blackstone was able to generate year-over-year growth of 49% for total revenue and 43% for net income. That’s good enough in my book to propel shares higher into 2014.
I’ve said before that Blackstone’s shares have gone too high, too fast for my liking. Yet, it’s undeniable that shares of this real-estate focused private equity firm have paid investors far better than homebuilders and REITs have.
If the real estate components of your portfolio are heavy on the latter two investments, consider adding some shares of Blackstone to balance them out. The firm has shown a remarkable ability to create profits throughout the real-estate shakeout.
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