ETF Spotlight: Real Estate Investment Trusts (REITs)
Investors are wary of real estate investment trusts since they crashed along with the market 2008 and failed to deliver their much-hyped diversification benefits. However, a desire for income and dividends could bring investors back to this beaten-down sector and REIT ETFs.
With investors turning to alternative avenues to generate additional income, real estate investment trusts, along with related exchange traded funds, are drawing upon an increasingly higher investment base. However, potential investors should be aware that this asset class is still an equity play at heart.
REITs have produced annualized returns of more than 10% over the past decade, and more recently, yields range between 3% to 8%, reports Walter Updegrave for CNN Money. [S&P’s Retail REIT ETF Pick]
However, REITs still trade like other equities, which are subject to potential capital appreciation or depreciation. Notably, investments in REITs plunged almost 50% during the real estate market collapse and the financial crisis of 2008. Additionally, the assets dropped 15% in late summer last year at the height of the Eurozone and U.S. double-dip recession scares.
While REITs and their related ETFs make regular payouts, investors need to remember that they are still more volatile than bonds and should be part of an equities allocation within an investment portfolio.
Nevertheless, REITs still provide another layer of diversification to any portfolio, since the assets show a lesser correlation to the overall stock market. Additionally, REIT ETFs provide investors with a broad, diversified mix of REITs, which helps investors avoid picking out the wrong REIT security. [Real Estate: List of REIT ETFs]
Potential REITs ETF investments to take a look at include:
ALPS ETF Trust Cohen & Steers Global Realty Majors ETF (GRI - News)
iShares FTSE EPRA/NAREIT North America Index Fund (IFNA - News)
iShares FTSE EPRA/NAREIT Global Real Estate ex-U.S. Index Fund (IFGL - News)
iShares FTSE NAREIT Mortgage PLUS Capped Index Fund (REM - News)
iShares FTSE NAREIT Residential PLUS Capped Index Fund (REZ - News)
iShares FTSE NAREIT Industrial/Office Capped Index Fund (FNIQ)
iShares S&P Developed ex-U.S. Property Index Fund (WPS - News)
iShares Trust Dow Jones U.S. Real Estate Index Fund (IYR - News)
iShares Trust Cohen & Steers Realty Majors Index Fund (ICF - News)
PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY - News)
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.
