If you think the entire real estate sector is done for, you haven’t been paying attention to REIT exchange traded funds (ETFs). Year-to-date, they have dusted the markets.
Investors are desperate for income and bank deposits pay almost nothing while bond yields have collapsed. REITs are one of the few games left in town. [REITs Outperform The S&P 500.]
Investors in REIT ETFs have made about 17% since Jan. 1 when dividends are factored in. Brett Arends for The Wall Street Journal reports that REITs are risk capital and bets on the economy. If we have a slow recovery and interest rates stay low, you may still be OK. However, the recovery slows further, REITs could take a punch. [How to Diversify a Portfolio With REIT ETFs.]
Andrew Menachem for The Miami Herald reports that the reality is that REITs are taking advantage of today’s lower values in the real estate market and in 2010 are already showing strong returns.
- REITs offer an opportunity for investors to add a new asset class to their portfolios. They traditionally have a very low correlation to conventional assets like stocks and bonds and typically have gone up during stock downturns.
- REITs have historically been a hedge against inflation.
- REITs pay an income stream and are required by law to distribute at least 90% of their annual taxable income to shareholders.
- They’re on track to exceed the $34.7 billion they raised last year; year-to-date, they’ve raised $27 billion.
- REITs have also reduced their leverage in the last year by one-third, reports CNBC.
There are several REIT ETFs, according to the ETF Analyzer, including these three. Visit the Analyzer to find others and sort by yield, performance and more:
- SPDR Dow Jones REIT (NYSEArca: RWR)
- First Trust S&P REIT (NYSEArca: FRI)
- iShares FTSE NAREIT Residential (NYSEArca: REZ)
Tisha Guerrero 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.