ETF Spotlight: Real Estate Investment Trusts (REITs)

May 21st at 9:00am by Tom Lydon

ETF Spotlight on Vanguard REIT Sector ETF (NYSEArca: VNQ), part of an ongoing series.

Assets: $25.2 billion.

Objective: The Vanguard REIT Sector ETF tries to reflect the performance of the MSCI US REIT Index, which is comprised of real estate investment trusts that cover office buildings, hotels and other real property.

Holdings: Top holdings include: Simon Property Group (NYSE: SPG), Public Storage (NYSE: PSA), Equity Residential (NYSE: EQR), Ventas Inc (NYSE: VTR) and HCP Inc. (NYSE: HCP).

What You Should Know:

  • The Vanguard Group sponsors the fund.
  • VNQ has an expense ratio of 0.12%.
  • The fund holds 111 stocks and the top ten makes up 46.1% of the overall portfolio.
  • Sub-sector allocations include: Diversified REITs 6.8%, Industrial REITS 5.1%, Office REITS 15.2%, Residential REITs 18.1%, Retail REITs 27.5% and Specialized REITs 27.2%.
  • The ETF has a 12-month yield of 3.27%.
  • The fund is down 2.8% over the last month, unchanged over the last three months but up 7.5% year-to-date.
  • “REITs afford retail investors the ability to participate in a traditionally illiquid asset class–real estate–and receive stocklike returns with bondlike income streams,” according to Morningstar analyst Abraham Bailin. “These benefits come in addition to real estate’s ability to serve as an inflationary hedge through its asset appreciation and rising rents.”
  • “For REITs, however, a portion of its dividend is subject to ordinary tax treatment up to the maximum rate of 35%. This is because REITs do not pay taxes at the operating level, so the tax burden is fully passed on to shareholders,” Bailin added.

The Latest News:

  • REITs are benefiting from the low interest rates as Eurozone concerns push investors to the Treasuries market, DailyFinance reports.
  • The cost of borrowing is lower, which has made the REITs business more profitable.
  • The Federal Reserve has already committed to keeping interest rates low, at least until 2014.

Vanguard REIT Sector ETF

For past stories in this series, visit our ETF Spotlight 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.

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