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With the Ten-Year Treasury floundering around the 2.0% yield mark, many income-oriented investors have been starved for yield as of late. Yet while bond market yields may still be very weak, a number of equity options could help to boost the overall cash payments from portfolios while still allowing for capital appreciation. Although utilities are often a popular (and safe) choice in these times, many might be overlooking real estate as another option to boost yields. In fact, many REITs are incentivized from a tax perspective to pay out at least 90% of their incomes to holders, further supporting robust yields in a way that many utilities simply cannot do (also read Top Three Leveraged ETFs For A Bear Market).
In light of this, as well as the apparent bottoming-out of the real estate sector, now may be a good time to take a closer look at the space for investment. While there are a number of quality options in the ETF world, ranging from everything from China real estate to American office space REITs, the yield differential between the products are quite astounding among the different sectors. As a result, we take a closer look at three of the top yielding real estate ETFs that investors have to choose from in order to help boost cash payments and keep current income flowing in on a regular basis.
First up on the list is the popular ex-US fund from WisdomTree that tracks the WisdomTree Global ex-US Real Estate Index. This benchmark is a fundamentally weighted index that measures the performance of companies from developed and emerging markets outside of the United States that are classified as being part of the “Global Real Estate” sector. The Index is comprised of real estate companies with market capitalizations greater than $1 billion. Companies are weighted in the Index based on regular cash dividends paid so only dividend payers are included and only those with the biggest payouts receive the major weightings in the fund (read The Yield King Of Leveraged ETFs).
In terms of holdings, the product contains about 150 securities with the biggest weightings going towards economies in the Asia-Pacific region. Australia and Hong Kong both make up more than 20% of total assets while Singaporean firms also make an appearance in the top four as well. For sector exposure, retail takes the top spot at just over one-quarter of total assets while ‘diversified’ firms make up another 22%. DRW charges investors 59 basis points a year in fees but pays out a yield of 5.6%, far higher than even long term Treasury bonds. Performance, however, hasn’t been too great as the product has fallen by nearly 22% in year-to-date terms.
For investors seeking a domestic play on the real estate sector, REM could be the way to go. The fund from iShares seeks to track before fees and expenses, of the FTSE NAREIT All Mortgage Capped Index. This benchmark generally consists of firms defined to be in the mortgage REIT industry or in the banking or mortgage finance space, giving the product a very different risk/return profile than other products which are more focused on the retail sector.
The product holds just under 50 securities in total with huge weightings going towards Annaly Capital Management (NLY - Snapshot Report) and American Capital Agency Corp (AGNC - Analyst Report) which make up 20.8% and 13.1% of the fund, respectively. While the product is heavily concentrated in these two companies, and the mortgage REIT sector in general, the product more than makes up for it with its ultra-high yield of nearly 11%. However, much like its international counterpart, the product has been beaten down from a share price perspective, falling by close to 21% in year-to-date terms (see Four ETFs Yielding 10% Or More).
For a true yield king in the space, investors should probably consider RWX for their real estate holdings. The product edges out REM in terms of yield, paying out a few basis points more than its American cousin. This is done by tracking the Dow Jones Global ex-U.S. Real Estate Securities Index, which is a float adjusted market capitalization benchmark designed to measure the performance of publicly traded real estate securities in developed and emerging countries excluding the United States (see Inside The SuperDividend ETF).
By following this benchmark, RWX ends up with a portfolio of roughly 131 securities with heavy exposure to developed economies along the Pacific Rim such as Australia and Japan. The two aforementioned countries make up close to 39% of total assets while double digit weightings are also afforded to the United Kingdom, Hong Kong, and Canada as well. In terms of sectors, Real Estate Operating Companies dominate with close to one-third of total assets, but are closely trailed by diversified real estate operators (24%) and regional malls (15%). The yield on RWX is the fund’s real selling point though, as the product pays out close to 11.3% to investors on an annual basis. Furthermore, from a performance standpoint, RWX has lost slightly less than its counterparts on the list, falling by about 19.9% in year-to-date terms.
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