4 REIT ETFs to play as yields finally tumble

Global investors piling into US government debt are pushing down rates, meaning exchange traded funds are rallying.

By Zacks.com Aug 21, 2013 10:02AM

Miniature home on sheet of percent signs © Comstock/Getty ImagesIt has been a brutal month for REITs as rising rates have crushed these high yielders. Prices of many in this space have slumped by more than 10% in this time frame, easily underperforming other high yield stocks as well as several longer dated bonds.

This trend only worsened as rates for benchmark 10-year government debt crossed the 2.9% mark, putting the 3% level -- a mark unimaginable six months ago -- in sight. While the prospect of the Federal Reserve tapering is looking pretty likely, REITs could continue their downcast performace if yields do hit this lofty mark (Zacks.com).

Yet, despite the poor trend for REITs lately, Tuesday's trading offered up some good news finally. Global markets generally tumbled, leading to a flight to quality. This helped to boost precious metals, but the real focus was again on the Treasury market. Global investors seemingly piled into U.S. government debt, pushing down rates close to the 2.8% level.

REIT investors rallied around this news, pushing the sector higher on the day. In fact, besides some continued strength in commodities -- specifically in miners -- REITs were actually leading for the session (Zacks.com).

ETF options

For broad exposure to the REIT market, investors can look to any number of REIT ETFs currently on the market. These have been crushed lately, so there may be decent short-term picks, assuming rates continue to consolidate.

Below, we highlight four of the most popular products in the space:

Vanguard REIT ETF (VNQ)

This is easily the most popular REIT ETF on the market with $16.6 billion in assets under management. The ETF is also a cheap choice as costs come in at just 10 basis points a year for this product.

In total, the fund holds about 125 REITs in its basket, with a roughly equal breakdown between large caps and then everything else. Specialized REITs take the top spot (28.8%), followed by retail REITs (27.7%) and residential REITs (16.7%).

The ETF was up 2.5% in Tuesday's session, though is is still down 10.2% over the past one month time frame. Still, the annual yield remains robust at 3.9% for VNQ.

iShares DJ U.S. Real Estate Index Fund (IYR)

This product is also a popular choice in the REIT market, as volume is usually above 11 million shares a day. IYR is a bit pricier than its counterpart though, as costs come in at 46 basis points a year (Zacks.com).

Total holdings come in just below 100 securities, though the fund does a solid job of spreading out assets, as just under 40% are in the top 10. Specialty REITs again take the top spot (just under 30%), while retail and industrial round out the top three at just about 20% each.

This ETF added about 2.8% in Tuesday trading, while its one month loss comes in at 9.7%. The ETF pays out a little less in yield though, coming in at 3.9% in 30-day SEC terms and 3.8% for a 12-month yield look.

iShares Cohen & Steers REIT ETF (ICF)

For another iShares look at the REIT market, investors have ICF. This product tracks the Cohen & Steers Realty Major Index, a benchmark of just 30 REITs, charging investors 35 basis points a year in fees for the exposure.

This ETF is heavily focused on large cap securities, as just one-third of the total is devoted to mid caps or smaller. Top individual holdings include Simon Property Group (SPG), Public Storage (PSA) and HCP Inc. (HCP), and these three combine to account for 21.8% of the total.

ICF was up roughly 2.4% in Tuesday trading, though it is still down 10.8% in the trailing one month time frame. In terms of yield, both the 30-day SEC Yield and the 12-month yield come in around the 3.0% mark (Zacks.com).


SPDR's entrant in the real estate market is also quite popular as more than $2 billion is invested in the product, while average daily volume comes in at roughly 200,000 shares a day. This ETF, which follows the Dow Jones U.S. Select REIT Index, is also a cheap choice, charging investors just 25 basis points a year in fees.

Once again, this is a large cap-focused fund with small and mid caps making up roughly 45% of the assets. Top sectors include regional malls, apartments and health care, all of which make up at least 14.6% of assets.

The ETF added roughly 2.5% in Tuesday trading, though it has lost about 10.4% in the past month. For yield, this fund is currently sporting a 3.4% 30-day SEC payout, while the annual payout comes in at 3.3%.

Bottom line

A rising rate environment has been terrible news for REIT ETFs, pushing many down in recent weeks. Investors are clearly thinking twice about the space given the rising expectations for tapering and the rising concerns over housing in general as rates go up (Zacks.com).

While this has been largely the trend as of late, REIT investors received a temporary respite in Tuesday's session. REIT ETFs surged on the day as global markets retreated and U.S. yields also fell.

Although it is unclear if this can continue -- especially with tapering pressures -- it is good to see REITs finally having a solid trading session in what has otherwise been a pretty rough period for this once-loved sector.

More from Zacks.com

Aug 21, 2013 10:56AM

"4 REIT ETFs to play as yields finally tumble"


Uh..., when prices of REIT's fall, don't yields go up?

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