Investors have funneled more money into real estate exchange traded funds so far this year than all of 2013 as interest rates level off and property values strengthen.
For this year through March 6, real estate ETFs attracted $3 billion in asset inflows, or 31% of all money going into sector-based ETFs, Bloomberg reports. Real estate ETFs have brought in 43% more than the net deposits the funds saw over all of 2013.
Contributing the rebound in the sector, benchmark 10-year Treasury yields have declined to 2.79% from about a 3.1% high at the end of 2013.
“Interest rates went up, but the reaction on REITs was way overdone,” Rich Moore, an analyst at RBC Capital Markets, said in the article. “It’s a combination of good yields out there which everybody likes and the fact that interest rate fears have gone down.”
Real estate investment trusts experienced a steep decline last year after the Federal Reserve hinted at tapering its quantitative easing program.
Currently, the improving economic conditions have helped landlords fill out office, industrial and retail space.
“If you trust the bond market, which we do, we’re in an OK environment for cost of capital,” Jim Sullivan, managing director at Green Street Advisors Inc., said in the article. “We have enough economic growth to keep buildings full to allow landlords to push rents, not a lot, but a little.”
The Vanguard REIT ETF (NYSEArca: VNQ) brought in $1.25 billion in inflows over the past month, attracting the most money within the space. The iShares U.S. Real Estate ETF (NYSEArca: IYR) brought in $506 million in assets. [Mortgage REIT ETFs Could Merit A Second Look]
“Deep discounts coming into the beginning part of this year combined with the dividends these REITs are paying woke people up to the fact that they looked pretty attractive,” Gavin James, chief executive officer of Western Asset Mortgage Capital Corp., said in the article.
VNQ is up 5.6% over the past year and shows a 3.95% 12-month yield. IYR rose 3.4% over the past year and comes with a 3.48%12-month yield. The dividend yield on the Blomberg REIT Index is 3.6%. [Global REIT ETF Ready to Roll Higher]
REITs hold property-linked assets and receive a favorable tax treatment as they pay out 90% of their taxable income in dividends, which also make the investments a go-to asset for income-generation.
For more information on the real estate market, visit our real estate category.
Max Chen contributed to this article.