Real estate is a beloved income destination, particularly when interest rates are low, as is the case today. However, investors need to assess the differences between various exchange traded funds in this category.
Take the case of the ALPS REIT Dividend Dogs ETF (NYSEArca: RDOG). When it comes to income, RDOG has the goods. The ALPS ETF sports a dividend yield of 4%, well ahead of what investors find on the widely followed MSCI US Investable Market Real Estate 25/50 Index. This indicates that there’s validity in a sector approach to income.
“While a diversified approach may be preferred for some investors, others may be looking for specific sector exposures to enhance income and position for inflation. REITs and midstream energy infrastructure may be particularly interesting for those investors. REITs are well positioned for inflation given that real estate rental prices are typically tied to inflation,” writes Alerian analyst Stacey Morris.
RDOG tracks the S-Network REIT Dividend Dogs Index, a benchmark that’s similar to those found on ALPS’s other dividend dogs ETFs. For those not familiar with that methodology, it’s an avenue that sets RDOG apart from competing real estate investment trust ETFs because the fund holds the five highest yielders from nine real estate industry groups.
Those include office, industrial, residential, diversified, specialized, healthcare, technology, and retail REITs, among others.
“RDOGX will also complete its annual reconstitution at the close of trading on December 17,” adds Alerian’s Morris.
When RDOG rebalances, its industry exposures are equally weighted. That’s an important trait for investors to consider on multiple fronts. First, as the performance of the real estate sector during the worst days of the coronavirus pandemic shows, some areas of the real estate sector are more vulnerable to headwinds than others.
Second, by equally weighting industry groups, RDOG actually increases exposures to some of the growthier real estate segments relative to old guard cap-weighted competitors. RDOG rebalances on a quarterly basis to keep its roster fresh and avoid concentration.
The methodology is working, as highlighted by a gain of more than 28% this year by RDOG.
Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
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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.
