ETF Spotlight: Real Estate Investment Trusts (REITs)

April 27th at 6:00am by Tom Lydon

Investors are wary of real estate investment trusts since they crashed along with the market 2008 and failed to deliver their much-hyped diversification benefits. However, a desire for income and dividends could bring investors back to this beaten-down sector and REIT ETFs.

With investors turning to alternative avenues to generate additional income, real estate investment trusts, along with related exchange traded funds, are drawing upon an increasingly higher investment base. However, potential investors should be aware that this asset class is still an equity play at heart.

REITs have produced annualized returns of more than 10% over the past decade, and more recently, yields range between 3% to 8%, reports Walter Updegrave for CNN Money. [S&P’s Retail REIT ETF Pick]

However, REITs still trade like other equities, which are subject to potential capital appreciation or depreciation. Notably, investments in REITs plunged almost 50% during the real estate market collapse and the financial crisis of 2008. Additionally, the assets dropped 15% in late summer last year at the height of the Eurozone and U.S. double-dip recession scares.

While REITs and their related ETFs make regular payouts, investors need to remember that they are still more volatile than bonds and should be part of an equities allocation within an investment portfolio.

Nevertheless, REITs still provide another layer of diversification to any portfolio, since the assets show a lesser correlation to the overall stock market. Additionally, REIT ETFs provide investors with a broad, diversified mix of REITs, which helps investors avoid picking out the wrong REIT security. [Real Estate: List of REIT ETFs]

Potential REITs ETF investments to take a look at include:

  • ALPS ETF Trust Cohen & Steers Global Realty Majors ETF (NYSEArca: GRI)
  • First Trust S&P REIT Index Fund (NYSEArca: FRI)
  • Focus Morningstar Real Estate Index ETF (NYSEArca: FRL)
  • Index IQ US Real Estate Small Cap ETF (NYSEArca: ROOF)
  • iShares FTSE EPRA/NAREIT Europe Index Fund (NYSEArca: IFEU)
  • iShares FTSE EPRA/NAREIT North America Index Fund (NYSEArca: IFNA)
  • iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. Index Fund (NYSEArca: IFGL)
  • iShares FTSE NAREIT Real Estate 50 Index Fund (NYSEArca: FTY)
  • iShares FTSE NAREIT Mortgage PLUS Capped Index Fund (NYSEArca: REM)
  • iShares FTSE NAREIT Residential PLUS Capped Index Fund (NYSEArca: REZ)
  • iShares FTSE NAREIT Industrial/Office Capped Index Fund (NYSEArca: FNIQ)
  • iShares FTSE NAREIT Retail Capped Index Fund (NYSEArca: RTL)
  • iShares S&P Developed ex-U.S. Property Index Fund (NYSEArca: WPS)
  • iShares Trust Dow Jones U.S. Real Estate Index Fund (NYSEArca: IYR)
  • iShares Trust Cohen & Steers Realty Majors Index Fund (NYSEArca: ICF)
  • Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT)
  • PowerShares Active U.S. Real Estate Fund (NYSEArca: PSR)
  • PowerShares KBW Premium Yield Equity REIT Portfolio (NYSEArca: KBWY)
  • Schwab U.S. REIT ETF (NYSEArca: SCHH)
  • SPDR Dow Jones REIT ETF (NYSEArca: RWR)
  • Vanguard REIT ETF (NYSEArca: VNQ)
  • Wilshire US REIT ETF (NYSEArca: WREI)

For more information on real estate investment trusts, visit our REITs category.

Max Chen contributed to this article.

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.