The S&P 500 has come under pressure this month, and it’s been even worse for one of its sectors.

The real estate investment trusts sector, or REITS, has fallen more than 10%. That makes it the worst performer in May with losses more than three times the broader S&P 500. The group has been hit hard by dire forecasts for commercial real estate as companies reassess their need for office space during and after the coronavirus pandemic.

It could get worse for the beaten-down group, said Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management.

“We’re very cautious on the space. I mean, I think earnings are going to be reset in general across all companies. And in this particular space, there are so many uncertain and unpredictable variables such as rent collection, such as financing debt, leverage and across so many sectors,” Bapis said Thursday on CNBC’s “Trading Nation.”

Even one potential reason for owning REITS – a healthy dividend yield – does not hold appeal for Bapis.

“Short term, we’re advising our clients to turn elsewhere for yield – pharma, tech, telecom, banking, other sectors you can get yield. Most people have bought REITS in the past for their attractive dividend yields,” said Bapis.

The REITS sector yields 3.8%, higher than the 2% for the S&P 500.

Todd Gordon, managing director at Ascent Wealth Partners, is also tapping the brakes on REITS.

“We have been reducing our exposure to REITS at Ascent and we are cautious on the sector going forward,” Gordon said in the same segment. “In the event that this does get worse and there’s a black swan event, a highly levered asset like this is the richest part of the equity piece of the capital stack so last to collect.”

The charts also suggest that this is a sector to avoid, said Gordon.

“Just over March, you can see the lower part of this chart, you’re seeing the ratio — real estate into the S&P 500 — dropping so real estate was underperforming on that last part of the sell-off as well as the recovery back so we continue to remain cautious,” said Gordon.

The XLRE REITS ETF is down 21% this year. The S&P 500, by comparison, has fallen 12%.


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