Real estate investment trusts (REITs) and sector-related exchange traded funds (ETFs) are a good source of attractive payouts in a low-yield environment.

REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages. Consequently, revenue are mainly generated through rents or interest on mortgage loans. To qualify for special tax considerations, the asset also distributes the majority of income, about 90% of taxable profits, to investors as dividends.

Related: Prepping for Wider REITs ETF Sector Adoption

“Incremental demand from a slowly improving economy has accrued to existing landlords in the form of higher occupancies, higher rental rates, and solid same-store net operating income growth,” according to Morningstar analyst Robert Goldsborough.

Additionally, REITs provide diversification benefits as the asset shows a lower correlation to stocks and bonds. However, the asset category has recently experienced heightened volatility due to interest rate risks. Some investors fear REITs will act negatively in rising interest rate environment. The high dividends in REITs are attractive in a low-rate environment but are less enticing once safer Treasuries show higher rates.

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“Interest rates undoubtedly will rise at some point, and higher interest rates remain the REIT sector’s greatest potential headwind,” Goldsborough added. “As rates rise, REITs’ interest payments go up, which means REITs have less cash flow available for dividends for equity investors. As a result, higher rates mean greater interest expense.”

REITs, though, may also experience a short-term boost in the months ahead as the S&P Dow Jones Indices stated it would add an 11th sector to its Global Industry Classification Standard, creating a new Real Estate Sector from the Financial Sector. The changes to the S&P 500 index will be implemented after the close of business on September 16, 2016.

Related: Keep REIT ETFs on Your Radar This Summer

The changes will impact the way investors conduct sector investing. An additional $100 billion or more could flow into the newly formed REIT sector as fund managers re-allocate assets in response to their sector investment guidelines.

ETF investors interested in following the REITs space have a number of exchange traded product options available.

REITs ETPs:
  • Vanguard REIT ETF (NYSEArca: VNQ)
  • iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR)
  • iShares Cohen & Steers Realty Majors (NYSEArca: ICF)
  • SPDR Dow Jones REIT ETF (NYSEArca: RWR)
  • Schwab US REIT ETF (NYSEArca: SCHH)
  • iShares Mortgage Real Estate Capped ETF (NYSEArca: REM)
  • iShares Residential Real Estate Capped ETF (NYSEArca: REZ)
  • First Trust S&P REIT Index Fund (NYSEArca: FRI)
  • PowerShares KBW Premium Yield Equity REIT Portfolio (NYSEArca: KBWY)
  • Market Vectors Mortgage REIT Income ETF (NYSEArca: MORT)
  • IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF)
  • iShares Real Estate 50 ETF (NYSEArca: FTY)
  • Fidelity MSCI Real Estate Index ETF (NYSEArca: FREL)
  • PowerShares Active U.S. Real Estate Fund (NYSEArca: PSR)
  • Wilshire US REIT ETF (NYSEArca: WREI)
  • Global X SuperDividend REIT ETF (NasdaqGS: SRET)
  • Guggenheim S&P 500 Equal Weight Real Estate ETF (NYSEArca: EWRE)
  • Real Estate Select Sector SPDR Fund (NYSEArca: XLRE)
  • First Trust Heitman Global Prime Real Estate ETF (NYSEArca: PRME)

Global REITs ETPs:

  • SPDR Dow Jones International Real Estate ETF (NYSEArca: RWX)
  • Vanguard Global ex-U.S. Real Estate ETF (NYSEArca: VNQI)
  • SPDR Dow Jones Global Real Estate ETF (NYSEArca: RWO)
  • iShares International Developed Real Estate ETF (NasdaqGM: IFGL)
  • FlexShares Global Quality Real Estate Index Fund (NYSEArca: GQRE)
  • iShares S&P Developed ex-U.S. Property Index Fund (NYSEArca: WPS)
  • iShares Global REIT ETF (NYSEArca: REET)
  • ALPS ETF Trust Cohen & Steers Global Realty Majors ETF (NYSEArca: GRI)
  • WisdomTree Global ex-US Real Estate Fund (NYSEArca: DRW)
  • First Trust EPRA/NAREIT Global Real Estate Fund (NYSEArca: FFR)
  • iShares FTSE EPRA/NAREIT Europe Index Fund (NYSEArca: IFEU)
  • Guggenheim China Real Estate ETF (NYSEArca: TAO)
  • Deutsche X-trackers Dow Jones Hedged International Real Estate ETF (NYSEArca: DBRE)
  • WisdomTree Global ex-U.S. Hedged Real Estate Fund (NYSEarca: HDRW)
  • Guggenheim Emerging Markets Real Estate ETF (NYSEArca: EMRE)
  • Tierra XP Latin America Real Estate ETF (NYSEArca: LARE)

Leveraged/inverse REITs ETPs:

  • UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEArca: MORL)
  • ProShares Ultra Real Estate (NYSEArca: URE)
  • Direxion Daily Real Estate Bull 3x Shares ETF  (NYSEArca: DRN)
  • ProShares UltraShort Real Estate ETF (NYSEArca: SRS)
  • ProShares Short Real Estate (NYSEArca: REK)
  • UBS ETRACS Monthly Pay 2xLeveraged MSCI US REIT Index ETN (NYSEArca: LRET)
  • Direxion Daily Real Estate Bear 3x Shares (NYSEArca: DRV)
  • UBS ETRACS Monthly Pay 2xLeveraged Dow Jones International Real Estate ETN (NYSEArca: RWXL)
  • UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN Series B (NYSEArca: MRRL)

 

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