Real estate is the top performing sector so far this year overtaking technology, which has been hit badly by increased tit-for-tat tariff trade dispute. The S&P 500 Real Estate Sector Index has gained 27.7% year to date while the S&P 500 Information Technology Sector Index is up 26.4%. In fact, the real estate index hit record levels with most of the stocks and ETFs reaching new highs.
The outperformance was powered by the Fed’s first rate cut in more than a decade and the prospect of lowering the rates further this year. The low interest rate environment has bolstered the lure of rate-sensitive sectors like real estate (read: Fed Cuts Rate: Sector ETFs & Stocks Set to Soar). 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. Also, the collapse in yields has added to the strength. When yields drop, mortgage rates fall, making buying of real estate or refinancing mortgages more affordable. Affordability of real estate boosts activity in the market and lifts real estate stocks. Further, web of worries including escalation in the U.S.-China trade dispute, global growth concerns, geopolitical tensions and Brexit woes are making investors jittery, raising the appeal of these stocks. This is because these often act as a safe haven in times of market turbulence while offering higher returns due to their outsized yields (read: August ETF Events That Grab Headlines). If these weren’t enough, warehouse specific real estate companies are performing solidly this year thanks to the e-commerce boom, which is also boosting the real estate sector. Given the bullish fundamentals, investors might want to tap the space with the top-performing real estate ETFs and stocks of this year so far. We have highlighted five of them that are poised to perform well. Best ETFs All these products carry a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF SRVR This fund aims to offer investors exposure to U.S. companies that generate majority of revenues from real estate operations in the data and infrastructure sector by tracking the Benchmark Data & Infrastructure Real Estate SCTRSM Index. AUM: $84.5 million Expense Ratio: 0.60% YTD Return: 39.9% Pacer Benchmark Industrial Real Estate SCTR ETF INDS This ETF offers investors exposure to U.S. companies that generate majority of revenues from real estate operations in the industrial sector by tracking the Benchmark Industrial Real Estate SCTRSM Index. AUM: $22.4 million Expense Ratio: 0.60% YTD Return: 35.6% iShares Residential Real Estate ETF REZ This fund offers exposure to the U.S. residential real estate sector and follows the FTSE Nareit All Residential Capped Index. AUM: $554.5 million Expense Ratio: 0.48% YTD Return: 30.2% Real Estate Select Sector SPDR Fund XLRE This fund provides exposure to companies from real estate management and development and REITs, excluding mortgage REITs by tracking the Real Estate Select Sector Index AUM: $3.9 billion Expense Ratio: 0.13% YTD Return: 30% iShares Cohen & Steers REIT ETF ICF 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 (read: REIT ETF Hits a 52-Week High). AUM: $2.4 billion Expense Ratio: 0.34% YTD Return: 27.6% Best Stocks We have highlighted the best-performing stocks that currently have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3. You can see . the complete list of today’s Zacks #1 Rank stocks here LGI Homes Inc. LGIH This Texas-based company is engaged in the design and construction of entry-level homes across Texas, Arizona, Florida and Georgia. Zacks Rank: #3 VGM Score: C Market Cap: $1.87 billion YTD Return: 80.2% Essential Properties Realty Trust Inc. EPRT This New Jersey-based company acquires, owns, and manages single-tenant properties in the United States (read: Here's Why So Many Real Estate ETFs Near 52-Week High). Zacks Rank: #3 VGM Score: D Market Cap: $1.73 billion YTD Return: 64.1% Equinix Inc. EQIX It is the world's largest IBX data center & colocation provider, offering the fastest application performance, lowest latency routes worldwide and a digital ecosystem for financial, content or rich-media, enterprise, and cloud networks. Zacks Rank: #3 VGM Score: C Market Cap: $44.98 billion YTD Return: 57.8% Safehold Inc. SAFE This company is revolutionizing real estate ownership by providing a new and better way for owners to unlock the value of the land beneath their buildings, while delivering safe, growing income and long-term capital appreciation to its shareholders. Zacks Rank: #1 VGM Score: F Market Cap: $1.01 billion YTD Return: 55.8% FirstService Corporation ( FSV Quick Quote FSV - Free Report) This Canada-based company provides residential property services to residential and commercial customers in the United States and Canada. Zacks Rank: #2 VGM Score: D Market Cap: $4.07 billion YTD Return: 51.7% Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>