Real Estate ETFs: Unexpected Safe Haven (RTL, ICF, SCHH, RWR)
Eric Dutram: Over the past month, markets have been under severe pressure as weak job growth in the U.S. has combined with worries over European debt to send stocks lower across the globe. Most segments of the stock market were impacted by this trend as broad market funds are down more than 1.5% in the case of SPY and over 4% when looking at QQQ.
However, one segment has held up quite nicely despite the economic turmoil, real estate. This corner of the market has outperformed even traditional safe havens such as utilities and gold over the past month, suggesting that real estate has become something of a safe haven investment as of late for American investors (see Small Cap Real Estate ETFs: Crushing The Competition).
This interesting trend seems to be likely due to the higher yield nature of securities in this slice of the market as payouts often exceed what investors see in similar broad market ETFs. One thing is for certain, it is not due to investors looking to cycle into beaten down securities as many real estate ETFs are up over 100% in the past three year period and have gained double digits in the year-to-date time frame.
Despite this, investors remain enamored with real estate securities as close to $1 billion has moved into the segment over the past month alone. This is in stark contrast to the broad equity ETF market where outflows are currently in the billions over the past month, implying a large divergence between the perception of the real estate market on one hand, and the broad stock market on the other.
Part of the reason could also be hopes for a housing bottom. New home sales—seasonally adjusted—came in above expectations, while pending home sales also handily beat expectations in the most recent release. To top things off, the broad seasonally adjusted Case-Shiller Home Price Index also came in above expectations, suggesting that some good news might finally be in the space for the first time in a while (read 11 Great Dividend ETFs).
Given this relatively strong data, solid inflows, and high yield, it isn’t too much of a stretch to see why investors have flowed into real estate securities at least for the time being. As a result of this sentiment, and the poor conditions in many other sectors, some investors might want to consider cycling into real estate ETFs at this time, as a way to play a top performing safe haven heading into the summer months.
For these investors, we have highlighted a few of the best performing real estate ETFs over the past month—all of which have added at least 4.5%– for those looking to make a play on the space. While the choices might seem similar, there are some key differences between the products, which we have highlighted below:
Dow Jones REIT ETF (NYSEARCA:RWR)
This ETF tracks the Wilshire REIT Index which follows companies that operate commercial real estate properties across the country. The product utilizes a float-adjusted market capitalization technique and charges investors 25 basis points a year in fees for its services.
In terms of yield, the product pays out about 2.9% in 30 Day SEC yield terms while trading volumes are quite robust. With average volume over 230,000 shares, the product has tight bid ask spreads as well, giving it low overall total costs (read more in the Zacks ETF Center).
Overall, the product holds 82 securities in total, including an 11.8% weighting to Simon Property Group (SPG - Analyst Report). Beyond that, no other company makes up more than 5.2% of the product suggesting decent diversification.
Schwab US REIT ETF (NYSEARCA:SCHH)
For those looking to cut down on costs, the Schwab REIT ETF could be an interesting pick. The product follows the Dow Jones US Select REIT Index and charges investors just 13 basis points a year in fees. Add in free trading on the Schwab platform and relatively tight bid ask spreads, and investors could have an extremely low cost product on their hands.
Yield on this fund is also impressive, as it comes in at just under 3.1% per year in 30 Day SEC Yield terms while holding a similar profile of stocks to RWR. In this fund’s case, 82 components make up the product, including another double digit weighting to SPG and similar weights to the rest of the top ten.
In terms of style exposure, the product is well diversified, although it is tilted towards value and blend securities. From a market cap look, large caps make up the majority although mid caps account for another 27% of assets as well.
iShares Cohen & Steers Realty Majors Index Fund (NYSEARCA:ICF)
For investors looking for an iShares choice, ICF could be a great investment. The product tracks the Cohen & Steers Realty Majors Index, offering exposure to about 31 firms in total while paying out 2.7% to investors in 30 Day SEC Yield terms.
Expenses and volume are in the middle, as costs come in at 35 basis points and volume is at roughly half a million shares a day. This suggests relatively tight bid ask spreads although total costs will likely be comparable to other funds on this list (see Three Unlucky Equity ETFs).
Although the product holds far fewer securities that the other funds on the list, and pays out a slightly lower yield, it is relatively well diversified. No one firm accounts for more than 8.7% of assets while the top ten holdings account for roughly 60% of the total. Large caps still dominate from a cap perspective, while blend and value take the bulk of assets from a style perspective.
iShares FTSE NAREIT Retail ETF (NYSEARCA:RTL)
Although RTL doesn’t have the most volume, only 6,500 shares on average, the product could be a decent choice for some investors willing to pay a little extra in costs. Not only are bid ask spreads wider, but the expense ratio comes in at 48 basis points as well.
Yet despite this, the product has been a solid performer over the past month, outgaining many of the other products on this list at time of writing. Not only that, but the fund does pay out a solid dividend yield of 2.9% to investors in 30 Day SEC Yield terms (seeThree ETFs With Incredible Diversification).
In terms of industries, regional malls take the bulk of the assets in this 30 stock fund with nearly 23.3% of the total assets going to SPG. Beyond this, the product is slightly concentrated in its top names as the 10 biggest components account for nearly 73% of the total assets.
Investors should also note that this product is more heavily tilted towards value than many other real estate ETFs on this list, although it does have a nice growth component as well. Additionally, mid caps actually make up a plurality of assets in this fund, suggesting that for investors looking to go beyond large caps, this product could be an interesting pick.
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