Even at the sector level, ETFs are supposed to be diversified, but it often doesn’t work out that way. The real estate sector is a good example of that issue.
Many old school ETFs tracking real estate investment trusts (REITs) only feature slight exposure to the fastest-growing, most compelling parts of the investable real estate universe while featuring significant weights to REITs vulnerable in economic downturns, such as retail and travel and leisure REITs.
The ALPS REIT Dividend Dogs ETF (NYSEArca: RDOG) is a prime avenue for solving some of the issues created by traditional REIT funds because RDOG equally weights nine REIT segments, effectively increasing exposure to desirable areas, such as industrial and technology REITs, while lowering allocations to retail and hotel REITs relative to traditional competitors. RDOG’s nearly 12% weight to technology REITs is particularly meaningful in the current environment.
“Tower REITs benefited from strong demand for infrastructure to support growing wireless data usage, while Data Center REITs boomed from the growing need for high-quality space to store servers and other computing equipment,” said S&P Dow Jones Indices in a recent note.
Other RDOG Perks
RDOG also has an almost 12% weight to industrial REITs, a group benefiting in significant fashion from the e-commerce boom, a shift amplified by the coronavirus pandemic.
“The Retail sector, in particular, has been hampered by the growth of e-commerce, as demand for space in malls and shopping centers has diminished due to increased online shopping. One of the primary beneficiaries of this trend was Industrial REITs—many of which support logistics for e-commerce,” according to S&P.
Due to longer-ranging shifts in the real estate business, RDOG could potentially be a winner over the long-term because of the changes being created by the coronavirus.
“All these trends were sharply accelerated by the pandemic, which has driven a far larger share of economic activity online, spurring even greater demand for data centers, wireless communication, and industrial warehouses,” said S&P. “Meanwhile, travel has come to a near standstill, leaving hotel occupancies at record lows. Companies are now rethinking how much office space they will need in the future, as remote working becomes more common, and retirees are rethinking the safety of living in retirement communities owned by Healthcare REITs.”
Other real estate funds include the FlexShares Global Quality Real Estate Index Fund (GQRE) and the Schwab US REIT ETF (NYSEArca: SCHH).
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.