IndexIQ, the Rye, N.Y.-based money management firm known for its hedge fund replication strategies, launched a small-cap ETF focused on REITs, providing investors with what the company called an opportunity to earn higher dividends than on REIT ETFs focused on bigger firms.
The IQ US Real Estate Small Cap Index ETF (NYSEArca:ROOF) comes with a 0.69 percent annual expense ratio, and is based on the IQ US Real Estate Small Cap Index-a float-adjusted, market-cap-weighted benchmark focused squarely on small-capitalization U.S. real estate companies, the company said in materials promoting the new fund.
REIT ETFs such as the $9 billion Vanguard REIT Index fund (NYSEArca:VNQ) loom largely in an investment universe where ultra-low interest rates have made getting income in the bond market more difficult without incurring too much risk of capital loss by venturing too far out on the yield curve. IndexIQ said ROOF's dividend of about 5 percent is as much as 200 basis points higher than those on many large-cap ETFs.
Vanguard said VNQ, which has an annual expense ratio of 0.12 percent, had a current unadjusted effective yield of 3.26 percent, according to information posted on its website. Vanguard said current unadjusted effective yield is based on the full distribution, including dividend income, return of capital and capital gain.
IndexIQ said that small-cap REITS, and ROOF's portfolio in particular, is full of companies that are primed to be acquired by large-cap REITS looking for growth opportunities.
The index that ROOF is built on includes the bottom 10 percent of U.S. REITs by market capitalization. IndexIQ also said that small-cap REITs have significantly outperformed large-cap REITs over most time frames.
It also noted that index rules require constituent companies to have a minimum market capitalization of $150 million and have average daily trading volume of 250,000 shares and $1 million worth of shares changing hands.
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