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Portfolio Manager Insights
Why I’m shopping in the retail REITs aisle
Fidelity’s Sam Wald believes retail REITs are in the early stages of a recovery following years of strong headwinds.
- After roughly a decade of weakness, brick-and-mortar retail properties are now seeing improved business conditions, presenting a renewed opportunity for investors in these real estate securities, according to Fidelity Portfolio Manager Sam Wald.
- “Given years of essentially no new construction, there’s now a shortage of retail properties in high-quality locations,” says Wald, who co-manages Fidelity Advisor® Stock Selector Mid Cap Fund. “There’s also good news on the demand side, as more brick-and-mortar retailers are successfully pursuing an ‘omnichannel’ strategy, which combines online shopping and in-person pickup or returns.”
- In actively co-managing the diversified domestic equity strategy focused on mid-caps, Wald employs a stock-by-stock investment approach. Together with Fidelity’s highly capable team of analysts, he assesses the relative appeal of individual real estate securities as he seeks to capitalize on pricing discrepancy in the market.
- For an extended period, retail property owners struggled amid excess supply of retail square footage and insufficient demand due to the acceleration of e-commerce, Wald notes.
- “For much of the past decade, I’ve avoided investing the fund in REITs – with no exposure at all to mall REITs – because of the poor supply/demand backdrop,” says Wald. “But with the retail property environment beginning to improve, I’ve increased the fund’s exposure to this category.”
- He points out that retail REITs have benefited from a far more favorable supply/demand environment, and certain stocks in the industry appear attractively valued as of April 30.
- He views both factors as potential catalysts for retail property owners, as constrained supply and rising demand for in-person retail experiences could support longer-term growth in rental income.
- Yet even as conditions have improved, retail rents remain 30% to 100% below levels that would justify new construction, suggesting upside potential for the stocks, according to Wald.
- The fund’s REIT holdings at the end of April included Macerich, which has been in the portfolio since 2024 and remains a favored mall-sector security.
- “I particularly like Macerich because I believe the company may benefit from improved industry fundamentals, and because its fairly new management team has made good progress in its business turnaround,” he says.
- Among shopping center REITs, Wald points to Urban Edge Properties as a fund holding he believes offers a strong risk/reward trade-off, explaining that shares of the shopping center REIT have gained increased investor recognition lately due to improving fundamentals.
- “Management has done a good job enhancing its property portfolio, which I believe offers the potential for outperformance,” he concludes.
FEATURED FUND
Fidelity Advisor Stock Selector Mid Cap Fund (FMCCX)
Seeks long-term growth of capital.
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