One previously favored income-generating asset class that lagged in 2013 was real estate investment trusts (REITs). Rising interest rates were the primary negative catalyst weighing on REITs and REIT exchange traded funds last year.

Higher interest rates not only make REITs less attractive from a yield standpoint, but also cause concern about the ability of highly levered REITs to continue paying and raising dividends. However, periods of economic strength are often associated with periods of rising rates and that could mean a brighter 2014 for some REITs, particularly small-caps if risk appetite remains elevated. [Rising Rates Sting REIT ETFs]

That scenario would be good news for the IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF). As it is, ROOF already has a compelling story to tell.

The ETF “finished the calendar year as a top-performing ETF in the real estate category. Since inception on June 14, 2011, ROOF has posted an annualized return of 14.25 percent, compared to 7.80 percent for the all-cap Dow Jones U.S. Real Estate Index. The fund is broadly diversified and includes exposure to mortgage REITs, office REITs, hotel REITs, specialized REITs, retail REITs and more,” according to a statement by IndexIQ.

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