That has been advantage this year as small-cap REITs have proven stronger than the broader universe of small stocks. For example, the IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF), a dedicated small-cap REIT ETFF, is up nearly 10% this year compared to a 2.5% gain for the iShares Russell 2000 ETF (NYSEArca: IWM). [A Big REIT Yields in This ETF]
Interest rates remain the primary concern for VNQ and rival REIT ETFs going forward. Last year, the ETF managed a 2.1% gain as the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) tumbled 6.1%.
“Because REITs must pay out most of their income as dividends, they rely on debt for growth. For REITs, higher rates mean more-expensive debt servicing and less business reinvestment. REIT yields also become less attractive relative to Treasuries when rates are high, putting downward pressure on the sector’s valuation,” according to Morningstar.
Vanguard REIT ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of IWM.