An in-depth look at two major small-cap focused REIT ETFs:
- PowerShares KBW Premium Yield Equity REIT (NYSEArca: KBWY) The index this fund tracks holds about 30 different REITs that are traded in the U.S. A dividend weighted methodology is used and 85% of assets are focused on small-cap companies while the other 15% is given to mid-caps. A 6% dividend yield is distributed. The ETF has returned about 10.8% year-to-date. The fund has an expense ratio of 0.35%.
- IQ U.S. Real Estate Small Cap ETF (NYSEArca: ROOF) This ETF tracks 42 companies and dedicates about 19% to office REITs, with another 15% allocated to specialized REITs. Mortgage REITs also are included in the top three holdings. Dutram explains that this fund could be a good indicator of the small-cap real estate sector due to its broad range. Year-to-date the fund has returned about 10.6%, with an additional dividend yield of 6.5%.
Prices of REITs have risen sharply with their performance, so investors should be aware that they are prone to the movements in economic growth, rising interest rates, and the commercial property market. [Are High Yield ETFs Also High Risk?]
“REITs do not guarantee the level of distributions to unit holders. Their payouts can fluctuate, or disappear, but they rarely vanish in totality,” Adrian Mastracci, with KCM Wealth Management, said on The Globe and Mail. “REITs are generally subject to the financial health of their tenants. Tenant bankruptcies, prevailing business conditions and the direction of interest rates can all have an effect on vacancy rates.”
Tisha Guerrero contributed to this article.
Story updated to correct fees for KBWY.