The Right Time for Real Estate ETFs

Real estate stocks, including real estate investment trusts (REITs) and the related exchange traded funds, are viewed as rate-sensitive assets.

With interest rates set to rise, income investors are understandably concerned about the potentially negative effect of higher borrowing costs on their rate-sensitive assets, but real estate investment trusts and related ETFs may be seen as an alternative income opportunity for yield-minded investors.

However, ETFs such as the NuShares Short-Term REIT ETF (Cboe: NURE) remain solid options for income investors. NURE is comprised of real estate investment trusts that invest in residential or commercial real estate with a shorter-than-average lease duration than REITs investing in other sectors.

“NURE is designed to provide exposure to REITs with shorter leases such as Hotel REITs, Apartment REITs, Storage Facility REITs and Manufactured Home REITs,” said Martin Kremenstein, Head of NuShares, Nuveen’s ETF business, said in an interview with ETF Trends. “Historically, these segments of the REIT universe have outperformed the broader REIT universe with lower risk and a comparable yield.”

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.