REIT ETFs Rock Higher as Rates Fall

ETF Trends

Exchange traded funds holding real estate investment trusts (REITs) were laggards last year as Treasury yields spiked.

Fortunately for income investors, 10-year Treasury yields have dipped 10.4% this year, turning some of the largest REIT ETFs from market laggards to leaders. Following gold and silver mining ETFs and biotech funds, REIT ETFs have been among the most impressive sector performers to start 2014 even as broader dividend funds have struggled. [Relief for REIT ETFs]

S&P Capital IQ points out that of the top 20 ETFs and ETNs in the month of January, it has a mixed view on the group. The research firm has overweight ratings on seven of those ETFs, marketweight ratings on nine and underweight ratings on four.

Notably, all seven of those overweight ETFs are tied to the REIT space, according to a research note from S&P Capital IQ. That group includes the $241.5 million iShares Residential Real Estate Capped ETF (REZ) . REZ was the epitome of a laggard last year, falling 3.5% in a decline that not only highlighted the ETF’s laggard status, but its vulnerability to rising rates as well. [Some REIT ETFs Struggle as Market Soars]

A more sanguine environment for bonds has benefited REZ in significant fashion as the ETF is up more than 8% to start the year. REZ, which features a trailing 12-month yield of 3.66%, or nearly 100 basis points above 10-year Treasuries, allocates over 79% of its combined weight to apartment and health care REITs.

The $4.1 billion iShares U.S. Real Estate ETF (IYR) also garners an overweight rating from S&P Capital IQ. IYR returned just 1.2% last year, but has nearly quadrupled that performance this year with a 4.6% gain.

As S&P Capital IQ notes, IYR offers broader exposure to the REIT space with four REIT sub-segments – specialty, retail, industrial and residential – each receiving double-digit allocations in the fund. IYR’s trailing 12-month yield is inline with that of REZ.

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).

iShares U.S. Real Estate ETF

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ETF Trends editorial team contributed to this post.


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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