2013 has been good so far for both the equity markets and the
ETF industry. The broad benchmarks are hovering near their
all-time highs thanks to improving global sentiment, and growing
Though most of the sectors are performing well, the real
estate sector is gaining immense popularity thanks to a gradual
recovery in the U.S. economy (read:
Two Sector ETFs Posting Incredible Gains
). Stronger commercial as well as residential real estate
fundamentals, upbeat housing data and higher home prices are
making securities in this segment attractive at present.
The low interest rate environment and moderate levels of
economic growth are stimulating real estate demand. Further, the
industry has a good track record of dividend payments, which are
arguably the biggest enticement for REIT investors. (U.S. law
requires REITs to distribute 90% of their annual taxable income
in the form of dividends to shareholders.)
This corner of the market has even outperformed the
traditional safe investments such as bonds and gold. This
suggests that real estate has become a safe haven investment for
investors once more.
This interesting trend could be due to the higher yield nature
of securities in this slice of the market as payouts often exceed
what investors see in similar broad market
Two Unconventional Sources of ETF Yield
As a result, for investors looking to make a play on the
space, we have highlighted three real estate ETFs that have
garnered huge investor interest, making them popular this year.
These ETFs have added at least 5% so far in the year, and any of
which could be great additions to a portfolio starved of real
estate (see more ETFs in the
While the choices look similar, there are some key differences
between the REIT ETFs, which we have highlighted below:
Vanguard REIT ETF (
Launched in September 2004, this is the largest real estate
ETF in the space and tracks the MSCI US REIT Index. The fund
gathered over $1.4 billion this year, leading to an asset
base of over $17.9 billion.
With holdings of 120 securities, the product puts 43.30% of
the assets in top 10 companies, suggesting a moderate
concentration across individual firms.
Simon Property (
) takes the top spot with the largest (10.7%) share while Public
) and HCP Inc. (
) occupy the other two spots with 4.7% and 4.6% of the assets,
respectively. Other firms do not hold more than 4.3% of VNQ,
suggesting solid diversification.
Looking at real estate market exposure, the fund is well
spread out between specialized REITs (30.10%), retail REITs
(27.10%), residential REITs (16.50%), office REITs (13.90%),
diversified REITs (7.30%) and industrial REITs (5.10%).
Large caps accounts for about 47% of the assets while mid and
small cap takes the remaining portion in the basket. The fund is
liquid as it trades in higher volumes of 2.6 million shares per
day on average, signifying that an extra cost of investment is
not involved, and that bid/ask spreads are minimal.
The product is one of the low cost choices in the space,
charging only 10 bps in annual fees from investors. The ETF
gained 6.46% in the year-to-date period and yields a solid 3.33%
in annual dividends (read:
Homebuilder ETFs: Can the Rally Continue?
iShares Dow Jones U.S. Real Estate Index Fund (
Launched in June 2000, the fund seeks to replicate the Dow
Jones U.S. Real Estate Index, before fees and expenses, and holds
89 securities in the basket.
The product pulled in about $231.4 million so far this year,
accumulating over $5.1 billion in its asset base while charging
46 bps in fees per year. It is tilted towards the large cap firms
with roughly 53% share with another 33% in mid caps.
IYR pays lesser attention to its top 10 holdings (less than
40% of assets) and is spread well across a variety of securities.
Like VNQ, SPG occupies the top position in the basket with 8.59%
share while American Tower (
) and HCP rounded off to the top three.
Among sector holdings, Specialty REITs, Retail REITs and
Industrial REITs take the major chunks of the asset base, with a
collective share of 67.74%.
The ETF has added about 6.80% in the year-to-date period and
has an impressive yield of 3.46% per annum. IYR is highly traded
relative to VNQ. The fund trades with average volume of 8.8
million shares per day.
SPDR Dow Jones REIT ETF (
This was another successful product this year, attracting $102
million in new capital. This ETF tracks the Dow Jones U.S. Select
REIT Index which follows companies that operate commercial real
estate properties across the country (read:
The Introductory Guide to Real Estate ETF
The fund has amassed over $2.1 billion in AUM and charges
investors 25 basis points a year in fees for its services.
Launched in April 2001, the fund holds 85 securities in total
with 47.98% of the assets going to top 10 holdings.
Like VNQ, SPG, PSA and HCP occupy the top three positions in
the fund's portfolio. Within the sector, regional malls take the
top spot in the basket with 18% share while apartments,
healthcare and office round off the top four.
In terms of yield, the product pays out about 2.89% in annual
dividend yields while trading volumes are quite good. With
average volume of over 240,000 shares, the product has wider
bid/ask spreads relative to VNQ and IYR, although this is still a
high volume level. The ETF is up 5.06% year-to-date.
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ISHARS-DJ REAL (IYR): ETF Research Reports
SPDR-DJ W REIT (RWR): ETF Research Reports
SIMON PROPERTY (SPG): Free Stock Analysis
VIPERS-REIT (VNQ): ETF Research Reports
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