Real estate investment trusts (REITs) and the related ETFs encountered some rough patches earlier this year due to the coronavirus pandemic, but many of the asset classes most adversely affected by COVID-19 are rebounding.
That’s good news for the ALPS REIT Dividend Dogs ETF (NYSEArca: RDOG), which gained 18.32% last week and is higher by almost 28% over the past month. RDOG launched in January as a replacement for a previously existing real estate ETF.
RDOG “screening is isolated at the REIT segment level, providing high dividend exposure by selecting the five highest-yielding REITs in nine REIT segments,” according to ALPS. “The new ETF includes a Technology REIT segment to help capture the strong growth in wireless towers and data centers, which can also act as a defensive attribute to the fund and excludes the Mortgage REIT segment to avoid REITs most sensitive to interest rates and credit spreads.”
Why RDOG Matters Now
As noted above, RDOG features exposure to nine corners of the REIT universe at weights ranging from 9.42% to 13.79%. Moreover, the ALPS fund features adequate exposure to REITs that are rebounding as the economy reopens or those at the epicenter of seismic consumer and technological shifts.
For example, no one wanted any part of hotel operators and real estate during the March market swoon,
but with evidence suggesting Americans are traveling, RDOG’s 13.79% weight to hotel REITs is going from burden to gift. Just look at the airline industry, which is rebounding. Many of those travelers will need hotel accommodations.
“The industry is showing some signs of recovery, but there are noticeable changes in consumer behavior,” John Grant, OAG’s senior aviation analyst, told CNBC. “People are booking later, seeking more flexibility in their travel bookings and not committing to payment until the last minute.”
Another highlight is RDOG’s 11.38% weight to industrial REITs, the fund’s third-largest industry exposure. While some analysts are speculating that industrial REITs could be confounded by weakening consumer confidence on par with retail ETFs, other data points suggest RDOG is positioned to endure retail weakness. In fact, thanks to the e-commerce boom, the ETF is poised to thrive as shoppers move online. Conversely, retail REITs are the ETF’s smallest industry exposure.
RDOG’s 11.11% weight to technology REITs is critical at the time of booming data center and 5G infrastructure demand.
“Data centers are a vital cog in today’s digital world, vast warehouses that contain servers that host and distribute the cloud-based applications we rely on to work, learn, and socialize. Whenever we click on a photo stored on the cloud, we are accessing a data center based who knows where,” according to Morningstar.
Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
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.