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Another Nifty Small-Cap REIT ETF


In what has been a banner year for real estate investment trusts (REITs) and the relevant exchange traded funds, much of the REIT ETF focus has been directed to the usual suspects such as the iShares U.S. Real Estate ETF (IYR) and the Vanguard REIT ETF (VNQ) .

Higher interest rates not only make REITs less attractive from a yield standpoint, but also cause concern about the ability of highly levered REITs to continue paying and raising dividends. However, periods of economic strength are often associated with periods of rising rates and that could mean a brighter 2015 for some REITs, particularly small-caps if risk appetite remains elevated. [Going Small Works for This REIT ETF]

As the IndexIQ US Real Estate Small Cap ETF (ROOF) has proven, small-cap REITs have worked well this year. The PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY) reaffirms that point.

KBWY, which sports a tempting 4.53% trailing 12-month yield, has surged nearly 19% this year. BWY targets some of the highest yielding small- and mid-cap REITs in the U.S. and weights holdings by dividend yields. [Alternative ETFs With Monthly Dividends]

“KBWY has been a consistent performer. It has been more volatile than REIT ETFs which fall in the large-cap category, but its performance hasn’t deviated widely from the pack. KBWY has a three-year standard deviation of 14.64 versus VNQ’s 13.42 standard deviation. The big difference so far has been that more of KBWY’s return comes in the form of income. Investors interested in higher income or monthly payouts can pair KBWY with a fund such as VNQ to up the total payout from their REIT exposure,” notes Matthew Sauer in a post on Seeking Alpha.

Small-cap REIT ETFs are a smart option at the time because of the ability of small-cap companies to outperform during a rising market. Also, the smaller companies are able to avoid global stock market volatility and the effects of a strong dollar unlike large-caps, which are usually tied to multinational firms and are vulnerable to overseas uncertainty and currency fluctuations.

KBWY has another trait to like: Its leverage as an aging U.S. population. Of the 31 stocks held by KBWY, over a quarter are health care REITs. [A Stellar Financial Services ETF]

KBWY, which just celebrated its fourth anniversary, charges 0.35% per year and has $120 million in assets under management. The ETF also pays its dividend monthly.

PowerShares KBW Premium Yield Equity REIT Portfolio