Investors Renew Love for Real Estate ETF

Although it is widely expected that the Federal Reserve will raise interest rates for the third time this year when the central bank meets in December, that is not keeping some investors from embracing rate-sensitive assets, such as real estate exchange traded funds.

For example, the Shares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) just capped one of its best weeks of adding new assets in some time.

“The iShares U.S. Real Estate ETF, ticker IYR, took in $425 million last week, the largest weekly inflow in almost a year. The fund hadn’t seen more than $400 million since last December,” reports Bloomberg.

Real estate investment trusts, or 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.

Like other high-yielding asset classes, REITs are viewed as sensitive to interest rate increases. The Federal Reserve has boosted borrowing costs twice this year, with most recent coming in June, and many bond market observers believe a third rate hike will arrive before 2017 is over.