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TheStreet Open House

Top 10 Real Estate ETFs

PowerShares Active U.S. Real Estate ETF (PSR) actively manages the constituents found in the FTSE NAREIT All Equity REIT index. The selection methodology uses quantitative and statistical metrics to indentify attractively priced securities and manage risk. The fund was launched in November 2008.

The expense ratio is .80%. AUM are only $23 million and average daily trading volume is around 7,000 shares. As of mid-July 2011 the annual dividend is $2.60 making the current yield high for the group at nearly 5% with a year-to-date return of 14.35% which is also the high for the group.

Data as of July 2011

PSR Top 10 Holdings and Weightings

1. Simon Property Group (SPG): 11.79%

2. Equity Residential (EQR): 7.05%

3. Vornado Realty Trust Shs of Benef Int (VNO): 6.94%

4. Boston Properties (BXP): 5.96%

5. Public Storage (PSA): 5.86%

6. Host Hotels & Resorts (HST): 4.65%

7. AvalonBay Communities (AVB): 4.45%

8. Health Care REIT (HCN): 3.56%

9. Kimco Realty (KIM): 3.08%

10. HCP (HCP): 2.57%

SPDR Homebuilders Select Industry ETF (XHB) follows the S&P Homebuilders Select Industry Index which follows all the common stocks listed on the NYSE and NASDAQ in an equal weighted manner. The fund was launched in January 2006.

The expense ratio is .35%. AUM equal $775 million with average daily trading volume of over 4 million shares. The high trading volume indicates much intraday and speculative trading. As of mid-July 2011 the annual dividend was $.13 making the current yield .75% with year-to-date return of 1.60%. The holdings below indicate some strange inclusions like BBBY, PIR, WHR and TPX--nobody pounding nails there.

Data as of July 2011

XHB Top 10 Holdings and Weightings

1. Tempur-Pedic International (TPX): 4.01%

2. Whirlpool (WHR): 3.84%

3. PulteGroup (PHM): 3.81%

4. Bed Bath & Beyond (BBBY): 3.80%

5. Lennar (LEN): 3.75%

6. Home Depot (HD): 3.73%

7. USG (USG): 3.72%

8. D.R. Horton (DHI): 3.69%

9. Pier 1 Imports (PIR): 3.63%

10. Toll Brothers (TOL): 3.62%

Much of this is drive for yield is due to aging baby boomers switching portfolio allocations from growth to income based models. Although the sector reportedly has nearly $3 trillion in debts due to rollover in the next five yearsm, investors seem sanguine about this. Also, malls, a large component of many REITs, report high vacancy rates into the teens. Most of the positive action comes from residential rental properties versus malls, leisure/hospitality and office complexes.

It should be noted that seeking yield over other considerations can be dangerous and lead to troubles for investors not looking deeply enough under the hood to understand other risks involved.

Nevertheless, previously there was also the attraction of previously of the non-correlation aspects of REITs from other sectors which has disappeared in the easy money period of 2010-2011.

There is a lot to choose from in terms of indexes linked to ETFs. Some are passive and duplicative relatively. It's essential to remember it's really a game of battleship for sponsors seeking to be first to a sector space or just being competitive in the space. This is their business interest apart from your investment interest. You should always ignore their interests and align your choices with what serves your objectives best.

Investors should note that in a rising market particularly ETFs linked to enhanced issues may outperform conventional index linked issues. I've not done enough analysis to determine their relative performance during down market periods.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Scottrade's Focus Shares and EG Shares which are issuing new ETFs. The former offers low expense ratios and commission free trading their firm. These may also become more popular as they become seasoned.

For further information about portfolio structures using this or other ETFs see www.etfdigest.com.

(Source for holding data is from ETF Database and from various sponsors.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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