Rate-Sensitive REIT ETFs Rebound

ETF Trends

Dragged to laggard status during last year’s spike in 10-year Treasury yields, interest rate-sensitive real estate investment trusts (REITs) and the exchange traded funds that hold those stocks have rebounded in noticeable fashion in 2014.

Year-to-date, the Vanguard REIT ETF (VNQ) , the largest REIT ETF by assets, is up by nearly 11% while the Schwab U.S. REIT ETF (SCHH) has tacked on almost 10%.

REITs and REIT ETFs have gained favor with income investors “ because they offer attractive yields with an alternative asset class that can produce excellent returns in this type of stable-interest-rate environment. However, the downside is that they are susceptible to declines if we get back into another rotation of higher interest rates and weakening housing data,” according to FMD Capital Management.

While there is no denying the group’s sensitivity to rising interest rates, one that often prompts concerns about REITs’ ability to continue growing dividends, investors have returned to REIT ETFs in a big way in 2014’s more sanguine rate environment.

The iShares Dow Jones US Real Estate Index Fund (IYR) has hauled in more than $700 million in new assets this year while VNQ has brought in nearly $2 billion, according to Street One Financial.[Chart of the Day: REIT Review]

As of March 6, real estate ETFs attracted $3 billion in asset inflows, or 31% of all money going into sector-based ETFs, Bloomberg reports. Real estate ETFs have brought in 43% more than the net deposits the funds saw over all of 2013. http://www.etftrends.com/2014/03/real-estate-etfs-asset-inflows-already-surpass-all-of-2013/

Earlier this year, S&P Capital IQ rated IYR and the iShares Residential Real Estate Capped ETF (REZ) overweight. REZ is higher by 6.2% year-to-date. [REITs Rock as Rates Fall]

IYR’s top-10 holdings, several of which garner high STAR rankings from S&P Capital IQ, include Simon Property Group (SPG), American Tower (AMT) and Public Storage (PSA).

Vanguard REIT ETF

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ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of VNQ.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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