REIT ETFs Outperform the S&P 500

August 11th at 6:00am by Tom Lydon

Did you think real estate was dead? Not so fast – REIT exchange traded funds (ETFs) have actually handily outperformed the broader market year-to-date. Will it last?

The standout performance of real estate ETFs this year has triggered a notion that the worst may be over for commercial real estate. However, second-quarter earnings reports may threaten any possibility that the outperformance has legs.

The drag on this asset class  may be that the negative second quarter performance in the sector is not enough to negate a sustained rally, says John Spence for The Wall Street Journal. [Why REITs Are Outperforming the Market.]

REITs are corporations that allow several different people to put money together to buy real estate property, equities and mortgages. Each REIT distributes 90% of its income to avoid paying corporate income taxes, reports Bobbyake for The Motley Fool. For investors, REITS provide a good source of income while appreciating in value. Because REITs distribute most income to shareholders, investors receive quarterly dividends.

Be warned: this is not the sector for the nervous investor. Jim Gallagher for STL Today reports that REITs specializing in mortgages are yielding between 9% and 15%. This sounds delicious in comparison to a 1% return on a savings account, but if interest rates rise or we see a double-dip recession, it could take mortgage REITs down. [As Homebuilders Lose Steam, REITs Gain It.]

For more stories about REITs, visit our REIT category. There are several REIT ETFs to choose from, according to the ETF Analyzer, including these below. Use the Analyzer to find them and sort by yield. In the last year, the S&P 500 is up 10.1%; in comparison:

  • SPDR Dow Jones REIT (NYSEArca: RWR): up 24.5%
  • First Trust S&P REIT (NYSEArca: FRI): up 25.3%
  • iShares FTSE NAREIT Residential (NYSEArca: REZ): up 27.1%

Tisha Guerrero contributed to this category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.