While the broader equities market started off the new year on the wrong foot, real estate investment trust-related exchange traded funds are rallying.
Over the past three trading sessions, REIT ETFs have been on the rise, with the Vanguard REIT ETF (NYSEArca: VNQ) up 2.4%, iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) 1.6% higher and SPDR Dow Jones REIT ETF (NYSEArca: RWR) up 2.5%.
The REITs space may be advancing as investors turn to the more attractive yield-generating option with benchmark 10-year Treasury yields dipping below 2% Tuesday. For instance, VNQ has a 3.13% 12-month yield, IYR has a 3.66% yield and RWR has a 3.06% yield.
Nevertheless, REITs may continue to strengthen ahead as the space experience graeter merger and acquisition activity, reports Janet Morrissey for TheStreet.
“We have recently ratcheted up our takeout odds at a number of REITs,” Green Street Advisors said in a report.
Green Street believes that after a sudden plunge in M&A activity following the financial downturn, deals will begin to pick up due to timing, valuations and rising pressure from activist investors. [Despite Rate Risk, REIT ETFs Could Still Perform in 2015]
“Decades have passed since activists have been so successful in forcing a change of control that would otherwise not have transpired,” Green Street said, citing the sudden change up in Equity Commonwealth (NYSE: EQC).
Moreover, value investors may also find some cheaper plays in the mortgage REITs space. For instance, the iShares Mortgage Real Estate Capped ETF (NYSEArca: REM) and the Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT) both show a 9.1 price-to-earnings ratio and a 1.0 price-to-book. Nevertheless, potential investors should be aware that interest rate risk has been a major negative factor whenever yield expectations rise. Given their robust yields, mREITs provide investors some cushion in case of a pullback on rising rates. REM has a 12-month yield of 14.52% and MORT has a 10.11% 12-month yield. [Issues to Consider With mREIT ETFs in 2015]
Vanguard REIT ETF
For more information on the real estate invest trusts, visit our REITs category.
Max Chen contributed to this article.