Investors have been giving real estate investment trusts a second look ahead of indexing sector reclassification, bolstering demand for REITs-related exchange traded funds. However, there is some other good news for the high-yielding asset class.
The sudden spike in interest for REIT ETFs may be due to the pending GICS sector elevation of REITs as the REITs category remains underweighted in many actively managed mutual funds.
REITs may continue to 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
Investors interested in gaining exposure to the broad REITs sector have a number of broad options available. For instance, the Vanguard REIT ETF (NYSEArca: VNQ), SPDR Dow Jones REIT ETF (NYSEArca: RWR) and iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) are among the most popular REIT ETF plays.
“Funds from operations (FFO) climbed 7.1% in the second quarter for the entire U.S. listed REIT industry, a 10.3% year over year gain, according to data from the National Association of Real Estate Investment Trusts (NAREIT),” reports Teresa Rivas for Barron’s.
FFO is the key metric REIT investors and analysts use to evaluate a REIT’s ability to sustain and grow dividends, the primary reason income investors are drawn to the asset class.