An Alternative View on REITs and the Related ETFs

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.

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.

Related: Undersupplied Housing Market Helps Boost This REIT ETF

Some market observers believe REITs will see increased after becoming the eleventh sector in the Global Industry Classification Standard, a change that became official last Friday. The logic behind that belief is that many active managers are under-allocated to real estate stocks and will be forced to buy those names to move inline with their benchmarks with real estate now being its own sector.


However, some analysts believe that enthusiasm is not all it is cracked up to be.