Exchange traded funds that invest in real estate investment trusts have become a popular choice for investors as the average yield has been around 3.7%, topping the yield on the 10-year Treasury note.
Real estate investment trusts may also boost portfolio diversification, although they have followed the stock market more closely in recent years.
There is about $3.7 billion in inflows into REIT funds for 2011, with total assets in REIT ETFs and mutual funds at a combined $96 billion. REITs pay out about 90% of net income to shareholders, and the sector boasts some of the highest yields in the market right now.
Furthermore, analysts are calling for an increase in dividend growth for this asset class to be around 4% to 6% this year. [4 Reasons to Consider Global Real Estate ETFs]
“It’s a great time to step in,” Rich Moore, analyst at RBC Capital Markets, said on Bloomberg. “If you want to buy stocks that are cheap, and they’re quality names, quality companies, then there’s a whole bunch of those in the REIT space.”
Despite the slump in the housing market, some investors think this is a good time to do some bottom fishing for undervalued properties and real estate shares. REIT ETFs are a good alternative investment for those who want the real estate exposure but do not wish to purchase property. [REIT ETFs: Will They Collapse or Prosper?]
REITs actually benefit from the slowdown in construction in the commercial real estate industry. As new supply wanes, current office and commercial space is used up, creating the possibility for higher rents and cash flow for real estate companies.
REIT ETFs include:
- SPDR Dow Jones International Real Estate (NYSEArca: RWX)
- iShares FTSE NAREIT Real Estate 50 (NYSEArca: FTY) yields
SPDR Dow Jones REIT ETF (NYSEArca: RWR)
Tisha Guerrero contributed to this article.