As the market continues to fluctuate and fails to make up any of the ground that it lost in 2008, investors are seeking all and any options that generate extra cash including some real estate stocks and real estate exchange traded funds (ETFs) that yield double digit dividends. But is it really worth it?
High Yields and Fundamentals. Many of these ETFs are tempting, but have a look under the hood. For example, iShares FTSE NAREIT Retail ETF (RTL) pays an attractive 11.01% dividend, but holds 25% of its assets in Simon Property Group (SPG). That’s a hefty weighting in one company, so be sure that’s what you want or what you intended to do.
RTL also holds Diversified Realty Corp (DDR) as a major player, which owns and manages shopping malls that were home to Circuit City, which is in the process of liquidating. This is why it’s important to check the holdings and see what’s going on – sometimes negative news can threaten to have a real significant impact.
Future of Real Estate. With the way the markets have been fluctuating over this last year, it’s tough to figure out what is a reasonable mix of yield and risk. Many real estate experts thought that the real estate market bottomed out in 2007 and would make a comeback in 2008, but we now know they were wrong. In fact, existing home sales dropped to an 11-year low in 2008, states Simon Maierhofer of ETF Guide. Additionally, there is an estimated $400 billion in commercial real estate loans maturing in 2009.
With the current trends in the real estate market, the unveiling of more bad economic news, and the overall market sentiment over the last year, it has many guessing that the market might finally bottom out in 2009. This doesn’t mean one shouldn’t play the market, just be mindful to look under the hood and make sure the nuts and bolts are well lubed and the engine is sound.
Above all, watch the trend lines and note when a fund moves above its 200-day moving average. Predictions are just guesses in the end, and wise investors wait for the trend to emerge first.
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.