This Asset Class Has Lagged the Market for Years But Was the Best Performer in June. Time to Invest?

The market was down about 1% in June, as measured by the S&P 500 index. In fact, most asset classes were down for the month, including international stocks, commodities, gold, and Bitcoin, among others.

The best-performing asset class in June might be a surprise to most investors, as it's one that's struggled for years. I'm talking about real estate investment trusts (REITs). REITs are companies that finance or own, and often manage, income-producing real estate. The properties they own can vary widely, from office and retail properties and residential real estate to healthcare and data center assets, among many other categories.

Many investors love REITs because they have certain tax advantages and, as a result, are required by law to distribute 90% of their taxable income to shareholders. That makes them great income stocks. For example, Realty Income (NYSE: O) is a retail REIT that distributes its profits monthly via dividends and has increased that monthly dividend 135 times since it went public in 1994.

REITs are finally rebounding from the pandemic

Many REITs struggled in the aftermath of the COVID-19 pandemic due to trends such as work-from-home culture and depressed spending at brick-and-mortar retail outlets. Plus, elevated interest rates implemented by the Federal Reserve after the pandemic hurt REITs, many of which rely heavily on debt to expand.

But REITs have rebounded in 2026. The entire sector is up about 9.5% this year, as measured by the Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ). That's slightly better than the broader market. As mentioned above, REITs had a strong month in June while the S&P 500 was down.

What's driving that comeback? Well, many workers have returned to offices and malls, while interest rates have come back down a bit. A few REIT categories are really driving the entire REIT sector higher. Lodging and resort REITs are up almost 43% this year and 12% in June alone, driven by a resurgence of group and corporate travel, according to the National Association of Real Estate Investment Trusts (NAREIT).

Data center REITs are up more than 33% this year, driven by extraordinary growth in the sector (particularly from artificial intelligence companies and rising data usage). Healthcare and self-storage REITs have both climbed more than 20% in 2026. Only two of the 14 REIT categories, as determined by NAREIT, are down for the year: gaming and telecommunications.

Image source: Getty Images.

It might be time to invest in REITs

So, if REITs have rebounded from their multi-year slump, is it time to invest $1,000 in them? Well, that depends on whether you believe the trends that have helped resurrect the category (workers returning to malls and offices, the data center build-out, low and stable interest rates) will continue in the coming months and years.

Of course, low office, retail, and lodging vacancy rates depend on a strong economy. Right now, the U.S. economy appears relatively resilient. The unemployment rate, at 4.2%, is near an all-time low, and the economy has added an average of 137,000 new jobs per month for the past four months.

The Federal Reserve may hike its target interest rate in the coming months (indeed, the futures market is pricing in one quarter-point hike this year). Still, unless the economy overheats, the Fed is likely to be very incremental with rate hikes. If interest rates stay at or near their current level for the next year, it shouldn't be a problem for debt-heavy REITs.

Healthcare is a relatively recession-proof industry, especially as the U.S. population continues to age, so REITs that own healthcare properties are likely to remain attractive. Of course, the data center build-out also continues at full steam.

You can invest in the entire universe of REITs with the Vanguard Real Estate Index Fund ETF. It's highly diversified, tracking 145 REITs, with healthy portions in data center REITs (10.7%), healthcare REITs (16.5%), and retail REITs (14.2%).

Of course, you can select individual REITs, too. Above, I mentioned the popular Realty Income REIT, which has climbed 13% this year. Welltower (NYSE: WELL) focuses on senior housing and healthcare properties and is up 26% this year. Digital Realty Trust (NYSE: DLR) and Equinix (NASDAQ: EQIX) are data center REITs, up 12% and 30% this year, respectively.

REITs are attractive, income-producing investments that can add diversity to your portfolio and provide exposure to real estate. They're definitely worth a look.

Matthew Benjamin has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Digital Realty Trust, Equinix, Realty Income, and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.