Investors recently got the first small-cap ETF tracking real estate investment trusts, but some options traders are positing for a pullback in REIT exchange traded funds.
IndexIQ this week launched IQ US Real Estate Small Cap ETF (NYSE Arca: ROOF).
“Performance among both small- and large-cap REITs took a big hit at the start of the financial crisis in 2007, but since 2009, REITs have seen a performance resurgence, with small-cap offerings far outpacing the performance of their large-cap counterparts,” said Adam Patti, chief executive IndexIQ. “In today’s environment, investors are hungry for income producing assets.”
He added small-cap firms may be acquisition targets by larger REITs looking to grow through mergers.
REITs are public companies that invest in commercial real estate and are required to pay out most of their net income to shareholders in the form of dividends to qualify for tax breaks.
An existing ETF tracking the large-cap REIT sector, iShares Dow Jones US Real Estate (NYSEArca: IYR), was up 7.3% year to date as of June 14, more than doubling the S&P 500’s gain, according to investment researcher Morningstar.
On Tuesday, buyers of puts were observed in the REIT fund, according to Street One Financial. The ETF fell sharply along with the broad market on Wednesday.
“The ETF has traded heavy volume in recent sessions and options players continue to position for additional downside in the sector,” Street One said Wednesday, adding the sector has had a decent rally and is up the past two sessions.
“That said, we have seen an uptick in trading activity in Direxion Daily Real Estate Bear 3x (NYSEArca: DRV), which offers three times leveraged exposure to those looking to take a bearish stance in the REIT sector,” the analysts wrote in a note.
iShares Dow Jones US Real Estate
Editor’s note: For more information on Street One ETF research, contact pweisbruch@streetonefinancial.com.