Investors Dump REIT ETFs As Interest Rates Rise

percent rateIt has been a brutal month in the REIT world as rising rates have crushed these high yielders. Prices for many in this space have slumped by more than 10% in the time frame, easily underperforming other high yield stocks, as well as several longer dated bonds as well.

This trend has stayed intact as rates for benchmark 10 year government debt crossed the 2.9% mark, putting the three percent level—a mark unimaginable six months ago– in sight. And while the prospect of the Fed tapering looking pretty likely, investors could see further losses in the REIT corner of the market if yields do hit this lofty mark (see Bet Against Real Estate with These Short REIT ETFs).

Yet while the trend has certainly been poor for REITs lately, Tuesday’s trading did offer up some good news finally. Global markets tumbled pretty much around the world leading to a flight to quality.

This helped to boost precious metals on the day, but the real focus was again on the Treasury market. Global investors seemingly piled into U.S. government debt pushing down rates close to the 2.8% level.

As you can imagine, REIT investors rallied around this news pushing this sector higher on the day. In fact, besides some continued strength in the commodity space—specifically in the miners—REITs were actually leading for the session.

ETF Options

For broad exposure to the REIT market, investors can look to any number of REIT ETFs currently on the market. These have been crushed lately, but if these trends continue may be decent short term picks, assuming rates continue to consolidate.

Below, we highlight four of the most popular products in the space for those who want a little more information on this in-focus space:

Vanguard REIT ETF (VNQ)

This is easily the most popular REIT ETF on the market with $16.6 billion in assets under management. The ETF is also a cheap choice as costs come in at just 10 basis points a year for this product.

In total, the product holds about 125 REITs in its basket, with a roughly equal breakdown between large caps and then everything else. Specialized REITs take the top spot (28.8%), followed by retail REITs (27.7%) and then residential REITs (16.7%).

The ETF was up 2.5% for the session, though the product is still down 10.2% over the past one month time frame. Still, the annual yield remains robust at 3.9% for VNQ.

iShares U.S. Real Estate ETF (IYR)

This product is also a popular choice in the REIT market, as volume is usually above 11 million shares a day. IYR is a bit pricier than its counterpart though, as costs come in at 46 basis points a year (see The Comprehensive Guide to REIT ETFs).

Total holdings come in just below 100 securities, though the product does a solid job of spreading out assets, as just under 40% are in the top ten. Specialty REITs again take the top spot (just under 30%), while retail and industrial round out the top three at just about 20% each.

Pages: 1 2

Leave a Reply

Your email address will not be published. Required fields are marked *