While most of 2014 has tried the nerves of investors in small-cap stocks and exchange traded funds, the opposite is true of real estate investment trusts (REITs).
The IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF) has proven that going small with REITs has worked this year. ROOF is up 15.1% year-to-date, better than five times the returns of the Russell 2000 Index.
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 2015 for some REITs, particularly small-caps if risk appetite remains elevated.
For now, the Federal Reserve appears committed to not altering its interest rate policy, which could be a sign another year of smooth sailing is ahead for ROOF. [Big REIT ETF Yield Under a Small-Cap Roof]
Small cap REIT exchange traded funds have been overlooked by some investors, but their high yields are worth a second look. That is certainly true of ROOF, which sports a trailing 12-month dividend yield of almost 5.5%. That compares with just 3.13% on the Vanguard REIT ETF (NYSEArca: VNQ), the largest REIT ETF.