When real estate investment trust (REIT) ETFs surged last year, the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEArca: INDS) was one of the leaders of the pack. With the group faltering due to the coronavirus pandemic this year, INDS is trading lower, but noticeably less so than rival funds, indicating it could be a winner again as investors peruse the sector for strong names.
INDS offers investors exposure to US companies that generate the majority of their revenue from industrial REITs that are part of the e-commerce distribution and logistics network. INDS provides exposure to the growing e-commerce space by investing in data center and distribution center REITs, along with higher quality retail real estate.
Translation: INDS is a play on e-commerce and the related real estate demands. Currently, e-commerce and online shopping represent about 10% of overall U.S. retail sales, a number that is expected to continue growing in the years ahead. The sudden rise of online giant retailers like Amazon have increased demand for warehouses to store inventory. Around 25% to 30% of warehouse space is currently dedicated to e-commerce.
That refined focus is vital at a time when markets are punishing hotel and retail REITs due to closures forced by the COVID-19 outbreak. For INDS, robust e-commerce exposure is integral at a time when so many shoppers are relying on online retail for essential goods, eschewing brick-and-mortar stores for fear of contracting the coronavirus.
Interest in INDS
“Thanks to the rapid growth of e-commerce due to online shopping, industrial REITs outperformed the market by 4.1%,” said S&P Dow Jones Indices in a recent note.
While INDS focuses on a growing segment of the real estate space, the ETF still offers a solid income proposition. The fund has a dividend yield of 2.03% and the potential for significant dividend growth. Dividends paid by industrial REITs surged 70% from 2013 through 2018, according to Nareit data.
Importantly, INDS is outperforming traditional REIT indexes and ETFs, many of which aren’t adequately allocated to industrial REITs, in the current rough market.
“Equity REITs as a whole have faced challenges caused by the COVID-19 pandemic; however, REIT sectors reacted differently in response to evolving economic conditions. Hotels and retails REITs have been more affected, while data center, cell tower, and industrial REITs have experienced limited disruptions,” according to S&P Dow Jones.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.