Real estate investment trusts and related exchange traded funds stood out in the sluggish financial services sector this year, with residential REITs leading the pack.
The iShares Residential Real Estate Capped ETF (NYSEArca: REZ) has jumped 20.7% year-to-date. In comparison, the S&P 500 index is up 6.7% this year while the S&P 500 Financials Index is 4.2% higher.
Residential REITs include companies that engage in the acquisition, development, ownership, leasing, management and operation of residential properties including multifamily homes, apartments, manufactured homes and student housing properties, writes Kevin Mahn for Forbes.
In an expanding economic environment, Americans are enjoying increased wages and will seek out alternative housing means. Nevertheless, some may be unable to afford singe family homes due to rising interest and higher mortgage rates, which would help support apartment rentals.
While rate risk has weighed on the market last year, other positive factors could support the residential REITs in an expanding economic environment. [REIT ETFs Enjoying Strong Fundamentals]
Unlike other REITs-related ETFs, REQ has a more targeted objective. Specifically, REZ includes a 43.6% tilt toward residential REITs, with top holdings including Equity Residential REIT (NYSE: EQR) 9.7%, Essex Property Trust REIT (NYSE: ESS) 4.6% and AvalonBay Communities REIT (NYSE: AVB) 4.5%.
Additionally, REQ includes a 53.9% position in specialty REITs, with top holdings including Public Storage (NYSE: PSA) 10.4%, Health Care REIT (NYSE: HCN) 8.2% and HCP REIT (HCP) 8.1%.
Specialized REITs include a group of companies that engage in alternative real estate rentals and leasing operations. For instance, self-storage REITs could benefit from our society of hoarders, especially as baby boomers shift from large single family homes to smaller apartments, assisted living facilities and nursing homes.
REZ has a 0.48% expense ratio and a 3.48% 12-month yield.
iShares Residential Real Estate Capped ETF
For more information on the financial sector, visit our financial category.
Max Chen contributed to this article.