As Treasury yields fall to a 14-month low, real estate investment trust-related exchange traded funds are outperforming the broader equities market and are attracting income-minded investors.
Year-to-date, the Vanguard REIT ETF (VNQ) has gained 17.2%, iShares Dow Jones US Real Estate Index Fund (IYR) rose 15.8% and SPDR Dow Jones REIT ETF (RWR) increased 17.4%. In comparison, the S&P 500 Index is up 4.6% this year. [Remember This REIT ETF]
REIT ETFs also held up better than the broader markets over the past month. VQN dipped 0.5%, IYR was flat and RWR was down 0.5% over the past month while the S&P 500 declined 3.3%.
“The outperformance compared to the S&P 500 index came from REIT sectors representing a broad range of U.S. economic activity, and was supported by good supply and demand balance in commercial real estate markets around the country,” NAREIT President and CEO Steven A. Wechsler said in a CNBC article.
Supporting the REITs space as an attractive yield-generating option, benchmark 10-year Treasury yields have dipped to a 14-month low.
“Low interest rates are a positive for REITs because they really offer investors an attractive yield alternative relative to Treasurys or fixed income and you have a growth characteristic to that dividend yield that will go up and increase versus kind of a fixed return over a period of time,” Steve Sakwa of ISI Group said in the article.
For instance, VNQ has a 3.05% 12-month yield, IYR has a 3.58% 12-month yield and RWR has a 3.03% 12-month yield.
Commercial real estate, apartment and self-storage are leading the space as rental demand and rents continue to rise. The iShares Residential Real Estate Capped ETF (REZ) has increased 20.8% year-to-date. The ETF shows a 3.46% 12-month yield. [Millennials Crimping Homebuilder ETF Recovery]
“I cannot remember a time when you had such a confluence of strong real estate fundamentals, relatively disciplined supply, good demand and accommodative capital markets,” Ross Smotrich of Barclays Capital said in the article.
Vanguard REIT ETF
For more information on real estate investment trusts, visit our REITs category.
Max Chen 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.