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Going Small Works With This REIT ETF


While most of 2014 has tried the nerves of investors in small-cap stocks and exchange traded funds, the opposite is true of real estate investment trusts (REITs).

The IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF ) has proven that going small with REITs has worked this year. ROOF is up 15.1% year-to-date, better than five times the returns of the Russell 2000 Index.

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.

For now, the Federal Reserve appears committed to not altering its interest rate policy, which could be a sign another year of smooth sailing is ahead for ROOF. [Big REIT ETF Yield Under a Small-Cap Roof]

Small cap REIT exchange traded funds have been overlooked by some investors, but their high yields are worth a second look. That is certainly true of ROOF, which sports a trailing 12-month dividend yield of almost 5.5%. That compares with just 3.13% on the V anguard REIT ETF (VNQ) , the largest REIT ETF.

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 unlike large-caps, which are usually tied to multinational firms and are vulnerable to overseas uncertainty. [Evaluating Small-Cap REIT ETFs]

That case is bolstered that the Russell 2000 has recently been outpacing the S&P 500 with the small-cap index up 4% over the past 90 days compared to 2.5% for the U.S. benchmark index.

Since inception on June 14, 2011, ROOF has posted an annualized return of 14.25 percent, compared to 7.80 percent for the all-cap Dow Jones U.S. Real Estate Index. The fund is broadly diversified and includes exposure to mortgage REITs, office REITs, hotel REITs, specialized REITs, retail REITs and more,”according to a statement by IndexIQ .

IndexIQ US Real Estate Small Cap ETF