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Play the Real Estate Recovery with ETFs


Real estate exchange traded funds are one of the best ways to play the real estate rally without buying and selling property. REITs, or real estate investment trusts, are another method to access yield minus physical ownership.

“Real estate offers the potential to hedge against rising inflation as rents are generally designed to keep pace with increasing prices. Not to mention that owning physical property and goods can be quite beneficial in periods of sustained inflation. Finally, as a non-correlated asset class, real estate adds a level of diversification to a portfolio and can actually ‘smooth-out’ returns over long stretches of time,” Aaron Levitt wrote for ETF DB.

ETFs have combined the above benefits with low-cost, flexible, diversification that can not be found in another trading vehicle. The income yield that comes with investing in REITs varies, reports Levitt, and it should be noted that different sub-sectors can be accessed through certain ETFs.

The iShares Cohen & Steers Realty Majors (ICF) bets on some of the largest REITs in the U.S., and currently yields only 2.15 %, while the mortgage REIT tracking iShares FTSE NAREIT Mortgage Capped Index (NYSEArca: REM) yields a staggering 12.68 %. [ ETFs for High Yield Seekers]

The real estate ETFs that focus on stocks such as the SPDR S&P Homebuilders (XHB) is more of a play on home construction and companies that do well during a housing boom, rather than physical property. The yield is much lower, 0.53% , and the performance does not mirror the real estate market. Companies such as Lowe’s (LOW) and Bed, Bath and Beyond (BBBY) are top holdings. [Housing Data Will Keep Homebuilder ETFs on Their Toes]

For those investors who seek even more diversification, global real estate is another option via REIT ETFs. The U.S.accounts for only 30% of the global real estate market.

The SPDR Dow Jones International Real Estate (RWX) and the iShares FTSE EPRA/NAREIT Developed REIT ex-US (IFGL) provide great returns and bigger yields than their domestic counterparts. Currently, both RWX and IFGL yield 6.2 % and 5.51 %. Plus, these ETFs benefit from currency fluctuations, and the weakening U.S. dollar actually enhances the performance of them. [Comparing Dividend Yield in REIT ETFs]

“According to industry group NAREIT, from 1990 to 2009, when the U.S. dollar was falling against the Japanese yen, average total returns for investors were 12.1% per year for investments in Asian REITs. However, 10.4 % of that return was from currency gains and just 1.7 % was from the REITs themselves,” Levitt wrote.

Tisha Guerrero contributed to this article

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.