For those investors who've lost their appetite for Real Estate
Investment Trust (REIT) stocks, the impact of encouraging economic
indicators over the past five months should act as an enticement.
After bouncing back from a lackluster 2013, this special hybrid
asset class pulled in their capital and scored well on the return
As per the National Association of Real Estate Investment Trusts
(NAREIT), the FTSE NAREIT All REITs Index climbed a decent 14.8%
against the 5.0% increase in the S&P 500 Index, from January
through May. (Read:
3 MLP ETFs for Excellent Income & Growth
Proving their mettle, REITs are again performing better than other
stocks -- a feature that makes their addition to your portfolio a
strategic one. Sidestepping interest rate issues and the Fed
policy, REITs have shifted their focus to overall economic
improvement, demand-supply dynamics and the corresponding impact on
the rental rates and occupancy levels.
Even if increase in interest rates hold back the industry's growth,
economic betterment will lead to improved disposable income, higher
occupancy levels and rent, rise in property valuation, and finally
improvement in total income and dividend level.
As REITs are usually owners and managers of different types of
properties (like malls, shopping centers, apartments, offices,
hotels, industrial or other facilities), shareholders not only
enjoy ownership benefits of the real estate without actually
becoming landlords, they also seek opportunities to gain maximum
leverage by focusing on the individual market dynamics of these
different asset types. (Read:
2 Summer ETFs surging to #1 Ranks
Economic Activity Picking Up
After a cold snap and contracted growth in the first quarter, the
sun is again shining on the economy and consumer optimism is back.
Impressive data across manufacturing to employment is raising hopes
for the second quarter and rest of the year. (Read:
3 Multi-Asset ETFs for Q3
With an uptick in consumer confidence (Index reached 85.2 in June,
up from 82.2 in May) and consumer spending accounting for over
two-third of the U.S. economic activity, we believe this is an
opportune moment for those companies that offer real estate support
to the sectors which directly benefit from these activities.
On the other hand, as construction is still at a comparatively low
level, we foresee limited supply in the near to medium term. And
coupled with the uncertainty related to interest rate hike, we
expect the REIT industry to be on a roll. (Read: 4 Overlooked ETFs
with double digit yields)
Dividends Still Key Attraction
In addition to capital appreciation, yield-hungry investors
continue to have a large appetite for REIT stocks as the U.S. law
requires these to distribute 90% of their annual taxable income in
the form of dividends to shareholders. This unique feature made the
REIT industry stand out and gain a solid footing over the past
As of May 30, the dividend yield of the FTSE NAREIT All REITs Index
was 3.97%. The yield of the FTSE NAREIT All Equity REITs Index was
3.49% while the FTSE NAREIT Mortgage REITs Index yielded 9.55%.
Clearly, the REITs continued to offer solid yields and outpaced the
2.01% dividend yield offered by the S&P 500 as of that date.
Accessibility to capital is a prime factor in the REIT industry and
the recent capital market activities gives cues of a rise in
investor confidence in this sector and their willingness to pour in
their hard earned money into it. As of May 30, REITs raised $27.7
billion through debt and equity capital offerings.
Also, 2013 was notable from this angle with listed REITs raising a
total of $76.96 billion compared with $73.33 billion in the prior
year. The increase was backed by a solid IPO market last year.
Exploring the Sector through ETFs
In this environment, we believe this is the right time to explore
the sector through ETFs so as to reap the benefits in a safer
way. (see all Real Estate ETFs
) Considering the prospects for return from dividend income and
capital appreciation, we have tracked the following REIT ETFs,
which could be worth considering:
Vanguard REIT ETF
The fund, launched in 2004, seeks investment results by tracking
the performance of the benchmark - MSCI US REIT Index - which is
used to gauge real estate stocks. The fund consists of 137 stocks,
which acquire office buildings, hotels, and other real property.
The top three holdings are
Simon Property Group Inc.
(EQR). It charges 10 basis points in fees (as of May 27, 2014). VNQ
has managed to attract $42.9 billion in assets under management
till May 31, 2014.
iShares U.S. Real Estate ETF
Launched in 2000, IYR follows the Dow Jones U.S. Real Estate Index
that measures the performance of the real estate industry of the
U.S. equity market. The fund comprises 101 stocks with top holdings
including Simon Property Group Inc.,
American Tower Corporation
Crown Castle International Corp.
The fund's expense ratio is 0.46% (as of Apr 30, 2014) and the
12-month trailing yield is 3.58% (as of May 31, 2014). It has
nearly $5.0 billion in assets under management as of Jun 26, 2014.
SPDR Dow Jones REIT ETF
Functioning since 2001, RWR seeks investment results of the Dow
Jones U.S. Select REIT Index. The fund consists of 91 stocks that
have equity ownership and operate commercial real estate, with the
top holdings being Simon Property Group Inc., Public Storage and
Equity Residential. The fund's expense ratio is 0.25% (as of Jun
27, 2014) and dividend yield is 3.05% (as of Jun 25, 2014). RWR has
about $2.6 billion in assets under management (as of Jun 25, 2014).
Schwab US REIT ETF
This fund debuted in 2011 and tracks the total return of the Dow
Jones U.S. Select REIT Index. The fund consists of 92 stocks that
own and operate commercial real estates. The top three holdings are
Simon Property Group Inc., Public Storage and Equity Residential.
It charges 7 basis points in fees (as of May 31, 2014), while the
trailing twelfth month distribution yield is 2.33%. SCHH boasts
$982.2 million in assets under management (till May 31, 2014).
First Trust S&P REIT Index Fund
Launched in May 2007, FRI is an ETF that seeks investment results
of the S&P United States REIT Index that gauges the U.S. REIT
market and retains consistency, which depicts the overall market
composition. The fund comprises 145 stocks with the top holdings
being Simon Property Group Inc., Public Storage and Equity
Residential. The fund's net expense ratio is 0.50% (as of Dec 31,
2013) and the 12-month distribution rate is 2.65% while index yield
is 3.69% as of May 30, 2014. FRI has about $256.4 million in net
assets under management (as of Jun 25, 2014).
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VIPERS-REIT (VNQ): ETF Research Reports
ISHARS-US REAL (IYR): ETF Research Reports
SPDR-DJ W REIT (RWR): ETF Research Reports
SCHWAB-US REIT (SCHH): ETF Research Reports
FT-SP REIT IDX (FRI): ETF Research Reports
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