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Real estate sector has rebounded strongly after its worst 2018 since the financial crisis. Most of the stocks and ETFs hit fresh highs this year. The outperformance was powered by the Fed’s cautious stance that it is not in a hurry to raise rates this year after four rates hike in 2018. This has returned the lure for rate-sensitive sectors. In fact, interest rates retreated from peak levels in November with the 10-year yield nearly 60 basis points below its 2018 peak.
The domestic economy is booming with strong job growth and higher consumer spending, thereby brightening the prospect of the real estate sector. This is because growth in the economy translates into greater demand for real estate, higher occupancy levels and landlords’ greater power to ask for higher rents (see: all the Real Estate ETFs here).
Global headwinds including still-unresolved U.S.-China trade war, global growth concerns, geopolitical tensions and Brexit concerns are making investors jittery, raising the appeal for these stocks. This is because these often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields.
REITs own and operate income-producing real estate. They are required to distribute at least 90% of taxable income to shareholders annually in the form of dividends and, in turn, can deduct those dividends paid from their corporate taxable income. Thus, REITs offer juicy dividend yields. Further, REITs have low correlation with other stocks and bonds, thereby providing huge diversification benefits to the portfolio.
Given the bullish fundamentals, we have highlighted a few real estate ETFs that hit new one-year highs in the last trading session. Any of the following funds could be excellent picks for investors seeking to benefit from defensive flight and a pause in Fed’s tightening policy. All these products carry a Zacks ETF Rank #3 (Hold) with a Medium risk outlook:
SCHH tracks the Dow Jones U.S. Select REIT Index, holding a well-diversified 113 stocks with none accounting for more than 8.4% of the assets. Residential REITs make up for the largest share at 22.8% while retail REITs, office REITs, specialized REITs and healthcare REITs round off the next four spots with double-digit allocation each. The product has AUM of $5.1 billion and average daily trading volume of 935,000 shares. It charges 7 bps in annual fees and hit a new high of $43.61. It is up 12.8% so far this year (read: Valentine's Week Special: 5 ETFs to Gift Your Loved Ones).
This ETF tracks the Dow Jones U.S. Real Estate Index. It holds a basket of 114 securities with each accounting for less than 7% share. Specialized REITs dominate the portfolio at 31% followed by residential REITs (13.9%) and retail REITs (13.3%). The fund has amassed $4.3 billion in its asset base while trading in heavy volume of 9.1 million shares a day on average. It charges 43 bps in annual fees and hit a new high of $84.48. It has gained 12.2% this year so far.
With AUM of $3.1 billion, this fund provides exposure to a small basket of 32 securities by tracking the Real Estate Select Sector Index. It is heavily concentrated on the top firm with 10.9% share while other firms hold no more than 8.2% of the assets. Equity Real Estate Investment Trusts make up for 97.9% of the assets while real estate management & development take the remainder. The product charges 13 bps in annual fees and sees heavy volume of around 4.6 million shares on average. XLRE climbed to a new high of $34.72 and has gained 11.5% this year so far (read: Real Estate ETFs at One-Month High: Here's Why).
This fund offers exposure to large real-estate companies that are dominant in their respective property sectors by tracking the Cohen & Steers Realty Majors Index. It holds 30 stocks in its basket with each making up for less than 8.3% share. Specialized REITs take the largest share at 26.7% of assets while residential REITs, retail REITs, office REITs and industrial REITs round off the next spots with double-digit exposure each. The ETF charges 34 bps in annual fees and sees good volume of around 211,000 shares on average. It has AUM of $2.1 billion and hit a new high of $107.45. ICF surged 12.1% in the same time frame.
This fund offers exposure to the U.S. residential real estate sector and follows the FTSE Nareit All Residential Capped Index. It has AUM of $400.2 million and holds 44 stocks in its basket with moderate concentration in the top firms. Here, residential REITs is the top sector with 48.3% share while healthcare REITs and specialized REITs round off the next spots. The ETF has 0.48% in expense ratio and average daily volume of 211,000 shares. It surged to a new high of $69.91, having gained 11.8% so far this year (read: Real Estate ETF Hits New 52-Week High).
This ETF provides exposure to 158 real estate stocks with none holding more than 6.71% share. It tracks the S&P United States REIT Index. About half of the portfolio is dominated by commercial REITs while specialized REITs and residential REITs round off the next two spots. The fund has been able to manage $117.2 million in its asset base while trading in lower volume of around 64,000 shares a day. Expense ratio comes in at 0.48%. The ETF jumped to $24.53 to reach a new one-year high and has added 13.4% in the same timeframe.
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Real Estate ETFs Hit New Highs
Real estate sector has rebounded strongly after its worst 2018 since the financial crisis. Most of the stocks and ETFs hit fresh highs this year. The outperformance was powered by the Fed’s cautious stance that it is not in a hurry to raise rates this year after four rates hike in 2018. This has returned the lure for rate-sensitive sectors. In fact, interest rates retreated from peak levels in November with the 10-year yield nearly 60 basis points below its 2018 peak.
The domestic economy is booming with strong job growth and higher consumer spending, thereby brightening the prospect of the real estate sector. This is because growth in the economy translates into greater demand for real estate, higher occupancy levels and landlords’ greater power to ask for higher rents (see: all the Real Estate ETFs here).
Global headwinds including still-unresolved U.S.-China trade war, global growth concerns, geopolitical tensions and Brexit concerns are making investors jittery, raising the appeal for these stocks. This is because these often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields.
REITs own and operate income-producing real estate. They are required to distribute at least 90% of taxable income to shareholders annually in the form of dividends and, in turn, can deduct those dividends paid from their corporate taxable income. Thus, REITs offer juicy dividend yields. Further, REITs have low correlation with other stocks and bonds, thereby providing huge diversification benefits to the portfolio.
Given the bullish fundamentals, we have highlighted a few real estate ETFs that hit new one-year highs in the last trading session. Any of the following funds could be excellent picks for investors seeking to benefit from defensive flight and a pause in Fed’s tightening policy. All these products carry a Zacks ETF Rank #3 (Hold) with a Medium risk outlook:
Schwab US REIT ETF (SCHH - Free Report)
SCHH tracks the Dow Jones U.S. Select REIT Index, holding a well-diversified 113 stocks with none accounting for more than 8.4% of the assets. Residential REITs make up for the largest share at 22.8% while retail REITs, office REITs, specialized REITs and healthcare REITs round off the next four spots with double-digit allocation each. The product has AUM of $5.1 billion and average daily trading volume of 935,000 shares. It charges 7 bps in annual fees and hit a new high of $43.61. It is up 12.8% so far this year (read: Valentine's Week Special: 5 ETFs to Gift Your Loved Ones).
iShares U.S. Real Estate ETF (IYR - Free Report)
This ETF tracks the Dow Jones U.S. Real Estate Index. It holds a basket of 114 securities with each accounting for less than 7% share. Specialized REITs dominate the portfolio at 31% followed by residential REITs (13.9%) and retail REITs (13.3%). The fund has amassed $4.3 billion in its asset base while trading in heavy volume of 9.1 million shares a day on average. It charges 43 bps in annual fees and hit a new high of $84.48. It has gained 12.2% this year so far.
Real Estate Select Sector SPDR Fund (XLRE - Free Report)
With AUM of $3.1 billion, this fund provides exposure to a small basket of 32 securities by tracking the Real Estate Select Sector Index. It is heavily concentrated on the top firm with 10.9% share while other firms hold no more than 8.2% of the assets. Equity Real Estate Investment Trusts make up for 97.9% of the assets while real estate management & development take the remainder. The product charges 13 bps in annual fees and sees heavy volume of around 4.6 million shares on average. XLRE climbed to a new high of $34.72 and has gained 11.5% this year so far (read: Real Estate ETFs at One-Month High: Here's Why).
iShares Cohen & Steers REIT ETF (ICF - Free Report)
This fund offers exposure to large real-estate companies that are dominant in their respective property sectors by tracking the Cohen & Steers Realty Majors Index. It holds 30 stocks in its basket with each making up for less than 8.3% share. Specialized REITs take the largest share at 26.7% of assets while residential REITs, retail REITs, office REITs and industrial REITs round off the next spots with double-digit exposure each. The ETF charges 34 bps in annual fees and sees good volume of around 211,000 shares on average. It has AUM of $2.1 billion and hit a new high of $107.45. ICF surged 12.1% in the same time frame.
iShares Residential Real Estate ETF (REZ - Free Report)
This fund offers exposure to the U.S. residential real estate sector and follows the FTSE Nareit All Residential Capped Index. It has AUM of $400.2 million and holds 44 stocks in its basket with moderate concentration in the top firms. Here, residential REITs is the top sector with 48.3% share while healthcare REITs and specialized REITs round off the next spots. The ETF has 0.48% in expense ratio and average daily volume of 211,000 shares. It surged to a new high of $69.91, having gained 11.8% so far this year (read: Real Estate ETF Hits New 52-Week High).
First Trust S&P REIT Index Fund (FRI - Free Report)
This ETF provides exposure to 158 real estate stocks with none holding more than 6.71% share. It tracks the S&P United States REIT Index. About half of the portfolio is dominated by commercial REITs while specialized REITs and residential REITs round off the next two spots. The fund has been able to manage $117.2 million in its asset base while trading in lower volume of around 64,000 shares a day. Expense ratio comes in at 0.48%. The ETF jumped to $24.53 to reach a new one-year high and has added 13.4% in the same timeframe.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>