This article was originally published on ETFTrends.com.
Real estate investment trusts and sector-related REIT ETFs have rebounded since the February correction, but investors may have overlooked this segment of the market.
REITs are an effective, liquid and low-cost means of investing in the real estate asset class, and it is now the third largest asset class in the U.S., with commercial real estate accounting for 17% of the U.S. investment market, according to Nareit.
Around 80% of investment advisors now recommend REITs to their clients, compared to 73% of surveyed advisors who recommended REIT exposure to clients in 2016.
More advisors have come to realize that the REITs sector provided high and growing income from rents plus moderate capital appreciation over time. Furthermore, since leases are tied to inflation and real asset values have tended to increase in response to rising replacement costs, REITs may also act as a suitable inflation hedge.
Why Consider REITs Now?
As more income-minded investors look to alternatives, they might consider REITs. Nareits advised investors that REIT allocations may range from 5% to 15% of a, depending on an investor's goals, risk tolerance and investment horizon. These percentages fall in line with the 17% share commercial real estate makes up in the overall U.S. investment market.
"Adding REITs to a hypothetical portfolio increased returns with no increase in risk and reduced the risk of retirees outliving assets. REITs have provided stable income despite inflation and market fluctuation," according to Nareits.
For those looking fore REITs exposure, investors may turn to sector-specific ETFs, such as the Vanguard REIT ETF (VNQ) , iShares Dow Jones US Real Estate Index Fund (IYR) and Schwab US REIT ETF (SCHH) . VNQ has a 3.59% 12-month yield. IYR has a 3.66% 12-month yield and SCHH has a 2.73% 12-month yield.
For more information on the real estate investment trusts segment, visit our REITs category.
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