This article was written by Brian Spero, who covers
investing, real estate, and technology on the financial
Crashers Personal Finance
Even though your house may still have a "For Sale" sign in the
yard, recent U.S. housing market numbers reflect a positive
long-term outlook and renewed interest from buyers. Fueled by
interest rates for mortgages
and positive economic growth factors like unemployment and GDP,
real estate prices have risen 4% to 5% over the last 12
That trend is likely to continue in the near term-- especially
if housing data remains solid-- and many investors are
looking for ways to capitalize on the resurgence. For some,
exchange traded funds (
) could be the answer, offering an opportunity to buy into
the boom with a single product that's relatively affordable and
If you're convinced that the real estate market is finally on
solid ground, here's a short list of intriguing ETFs covering
real estate investment trusts (REITs)
that highlight the potential and diversity of the category:
Vanguard REIT Index ETF (
A logical place to start when considering the introduction of
broad real estate holdings to your investment portfolio, the
Vanguard REIT Index ETF has been touted for its solid approach to
mirroring the returns of the MSCI US REIT Index. It currently
holds a bucket of 108 stocks, representing a wide-spectrum of
domestic companies with purchases in office buildings, hotels,
and other real estate.
Established in 2004, the fund has substantial net assets in
excess of $32 billion, and an ultra-competitive expense ratio of
0.10%. Up 9% since its inception, this leading real estate fund
has provided a one-year performance on the plus side of 17%.
With essentially all of its asset allocation in U.S. stocks
focused on the real estate sector, this ETF could be poised to
supply a rewarding return against the inherent risks of real
estate market fluctuation.
iShares FTSE NAREIT Mortgage Plus Capped Index Fund (
For investors sold on the current stability of mortgages due
to continuing low-interest rates, the NAREIT Mortgage Plus Capped
Index Fund is worth a look. This fund invests net assets in
excess of $1 billion in the residential and commercial mortgage
real estate sector, seeking results that closely match those
supplied by the FTSE NAREIT All Mortgage Capped Index.
Since its inception in May of 2007, the fund has recovered
most of the losses it sustained over the first 12 months and is
now down just -8.73% since inception (after a
brutal -43.20% in total returns over the first 12 months of
its life at the depths of the crash). In 2012, the fund kept pace
with the index at +21.90%, and is +12.51% year-to-date.
The ETF currently spreads its assets over 29 holdings,
and is top-heavy with more than 70% focused on the top
10 securities. It relies heavily on its top two holdings
with 21.27% of net assets invested in Annaly Capital Management
(NLY) and 15.70% in American Capital Agency Corp (AGNC). The fund
follows a high-yield strategy (current SEC-30 Day
yield is north of 11%) in the moderately risky mortgage
finance space, and may be enticing to investors thanks to the
positive climate of the mREIT market.
Schwab U.S. REIT ETF (
A relatively young fund offered by Schwab that boasts low
annual fees of 0.13%, this U.S. real estate ETF seeks to provide
potential returns from both dividend income and capital
appreciation. Set to track the Dow Jones U.S. Select REIT Index
as closely as possible, the fund efficiently conforms to the
index while providing optimal tax efficiency.
The product currently includes total net assets of $466.6
million, with allocations across 83 stocks. Just below 50% of its
assets are concentrated in its top 10 holdings. With a low 5%
annual turnover, this ETF's index demonstrates a steadier
hand than most other competing funds.
The ETF's diverse real estate holdings have produced a +14.56%
return since its inception at the start of 2011, with a
current above-benchmark cumulative performance of +5.40%
year-to-date. With an impressive short sample of success in
mirroring its underlying index, a fund like the Schwab U.S. REIT
ETF may provide a portfolio with the desired exposure to the
broader market with healthy dividend opportunities.
SPDR Dow Jones Wilshire REIT ETF (
For those who put more faith in the commercial real estate
market than sustained residential growth, or wish to diversify
within the category, the SPDR DJ Wilshire REIT ETF is a solid
option. This fund strives to follow the Wilshire REIT Index of
companies operating in commercial real estate properties.
Made up of 84 securities, this fund's primary holdings are
regional malls, apartments, healthcare, and office space.
Launched in April 2001, the fund allocates almost half of its $2
billion in net assets to its top 10 holdings. It has posted an
impressive +11.41% performance since inception, weathering the
2007 housing collapse by rebounding with a +19.44% performance
over the past three years.
The fund is managed using a float-adjusted market
capitalization technique, has a gross expense ratio of 0.25%, and
a steady annual turnover rate of 7%.
While many Americans with homes on the market may benefit from
the recent real estate upswing, ETFs provide a path for a wide
range of investors to profit. Whether you're considering an ETF
that mirrors the broadest index or one that's more focused, now
could be a good time to talk to your financial advisor about
adding a real estate ETF to your portfolio.
What is your experience with real estate-oriented ETFs?
ISHARS-F N MTG (REM): ETF Research Reports
SPDR-DJ W REIT (RWR): ETF Research Reports
SCHWAB-US REIT (SCHH): ETF Research Reports
VIPERS-REIT (VNQ): ETF Research Reports
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