A recent uptick in equity market uncertainty is prompting many investors to revisit defensive and lower volatility assets and the related ETFs. Some of the ETFs to buy for investors looking to be defensive are broad market funds and that makes sense, but some sectors can help investors bolster their portfolios’ defensive postures.
The real estate sector is one of the smallest sectors in the S&P 500, but is also home to plenty of ETFs to buy for investors looking for defensive exposure. Recently, the Vanguard Real Estate ETF (NYSEARCA:VNQ), the largest real estate ETF by assets, has performed less poorly than the broader market. Historically, large-cap real estate investment trust (REIT) funds have not only delivered higher dividend yields than broader equity benchmarks, but less volatility as well.
With expectations in place that the Federal Reserve will not raise interest rates this year, the rate-sensitive real estate sector could present defensive investors with a slew of credible ETFs to buy. Adding to that case is the domestic focus of the real estate sector, making the group ideal for investors looking skirt international headline risk.
For investors searching for some defensive ETFs to buy, consider some of the following real estate funds.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Expense ratio: 0.60% per year, or $60 on a $10,000 investment.
A good point to remember when looking for ETFs to buy, or any asset class for that matter, is to look for strength in the face of weakness. The Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSEARCA:SRVR) certainly fits that bill. While broader indexes and some traditional real estate funds have recently scuffled, SRVR is up 1.10% over the past week, extending its impressive year-to-date gain to 22.61%.
SRVR can be seen as a next-generation real estate ETF to buy because it is levered to a slew of exciting trends, including cloud computing, 5G and other revolutionary technologies. What makes SRVR one of the premier real estate ETFs to buy is that rival, traditional funds, such as VNQ, have only token exposure to the REITs that are driving SRVR higher.
Investors are not giving up on income by embracing SRVR. The REIT fund had a dividend yield of 3.25% at the end of the first quarter. Overall, this ETF buy is offering up plenty for investors to like, including an above-average dividend yield, significant leverage to a fast-growing theme and strength in the face of broader market adversity.
Global X SuperDividend REIT ETF (SRET)
Expense ratio: 0.59%
The Global X SuperDividend REIT ETF (NASDAQ:SRET) is at the other end of the spectrum as the aforementioned SRVR. SRET is down 2.57% over the past week and its chart indicates the fund could have further to fall over the near term. So this fund may not be an ETF to buy right now, but it is one for investors to consider when global headwinds abate.
SRET tracks the Solactive Global SuperDividend REIT Index and holds 30 of the world’s highest yielding REITs, giving it some international diversity. That said, SRET’s ex-US exposure is currently modest and comes in the form of a roughly 10% combined allocation to France and Australia.
With more than 59% of its weight allocated to mortgage REITs, or mREITs, SRET is positioned to take advantage of a more sanguine interest rate outlook in the U.S. With a 30-day SEC yield of 7.97%, SRET is most certainly a high-yield asset, meaning it needs the Federal Reserve to remain on hold with rate hikes.
Still, some investors view this an ETF to buy. SRET had $180.72 million in assets under management at the end of the first quarter, a figure that has since jumped to almost $204 million. SRET also pays a monthly dividend.
Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
Source: Oleg Zaytsev via Flickr
Expense ratio: 0.60%
Like its aforementioned stablemate SRVR, the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA:INDS) is an ETF to buy because it is at the epicenter of some seismic shifts in the real estate universe.
There are plenty of headlines out there about the “death of retail” and the “retail apocalypse,” but that chatter is relevant to brick-and-mortar retailers, not e-commerce names like Amazon.com Inc. (NASDAQ:AMZN). Simply put, e-commerce is the future of retail, brick-and-mortar stores are rapidly closing and e-commerce companies need space.
Retailers closed a record-breaking 102 million square feet of store space in 2017, then smashed that record in 2018 by closing another 155 million square feet of space, according to estimates by the commercial real estate firm CoStar Group,” reports Business Insider
More than 6,000 retail stores have been shuttered just this year and some analysts believe the U.S. remains well overstocked when it comes to physical retail space. Expect the industrial REITs in INDS to snatch up plenty of that space and market it to purveyors of online retail operations.
INDS yields 3.35% and is up 20.63% year-to-date, trouncing its more traditional rivals, like VNQ, while underscoring its status as one of the best real estate ETFs to buy.
Todd Shriber does not own any of the aforementioned securities.