The Right Time for Real Estate ETFs

REITs provide diversification benefits as the asset shows a lower correlation to stocks and bonds. However, the asset category has recently experienced heightened volatility due to interest rate risks. Some investors fear REITs will act negatively in rising interest rate environment. The high dividends in REITs are attractive in a low-rate environment but are less enticing once safer Treasuries show higher rates.

“REITs with shorter leases tend to outperform during periods of rising interest rates due to their ability to take advantage of improving economic conditions by adjusting pricing more frequently as lease terms expire and are renewed,” said Kremenstein.

NURE, which tracks the Dow Jones U.S. Select Short-Term REIT Index, has a 30-day SEC yield of 3.37%. The ETF allocates 46.1% of its weight to apartment REITs and 28.8% to hotel REITs. Self-storage REITs account for 16.3% of NURE’s roster. NURE has 37 holdings.

Year-to-date, as of 2/15, the yield on the 10-year Treasury has moved from 2.46% to 2.90. During this period, the index underlying NURE has outperformed the broader REIT market as represented by the Dow Jones US Select REIT Index by more than 200 basis points, according to Kremenstein.

For more information on real estate investment trusts, visit our REITs category.