Real estate ETFs have been moving like a stealth bomber under
the radar for the first three months of the year and continue to
notch new 2014 highs.
The combination of stabilizing interest rates and low equity
issuance has been a tailwind for publicly traded REITs that are
coming off a volatile 2013.
In addition, investors are continuing to see positive signs of
increasing real estate prices that make this sector both a growth
and income play moving forward.
The largest ETF in this space is the Vanguard REIT ETF (NYSE:
) which tracks a diversified portfolio of more than 130 publicly
traded commercial and residential REITs.
The top three holdings in VNQ include: Simon Property Group
), Public Storage (NYSE:
) and Prologis Inc (NYSE:
). In addition, this ETF offers a 30-day SEC yield of 3.83
percent and charges a rock-bottom annual expense ratio of just
3 Ways ETF Investors Can Profit From Rising
So far this year, VNQ has gained over 11 percent and continues
to signal that the uptrend is showing no signs of slowing down.
When compared to the flat returns and meager 1.80 percent yield
of the SPDR S&P 500 ETF (NYSE:
) over the same time frame, you can easily see how much this
sector has outperformed in 2014.
Aggressive income seekers
in the real estate sector are also likely to be drawn to mortgage
REITs which have been on a strong run over the last several
months as well. The iShares Mortgage REIT Capped ETF (NYSE:
) has a 30-day SEC yield of 10.94 percent that is near the top of
its class for equity-income funds.
Mortgage REITs tend to be highly sensitive to any swift move
in bond yields because they borrow short-term money very cheap
and use it to buy long-term debt. This enables them to pocket the
spread on interest rates and distribute the majority of earnings
In addition, they use excessive leverage to juice their
returns which in turn makes them more responsive to changes in
The biggest risk to the real estate sector moving forward is
the threat of an additional push higher in interest rates which
would act as a headwind for further upside.
However, further positive economic data coupled with
additional demand in real estate prices would likely lift these
ETFs even higher.
© 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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