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Top 10 U.S. Real Estate ETFs

Stocks in this article: VNQ IYR ICF RWR REM SCHH REZ

FRI (First Trust REIT ETF) follows the S&P United States REIT Index measures the investable U.S. REIT market. The fund was launched in May 2007. The expense ratio is .50%. AUM are just under $360 million and average daily trading volume is around 528K shares. As of early November 2011 the annual dividend is $.40 making the current yield 2.54% with a YTD return of 5.92%.

Data as of November 2011

FRI Top Ten Holdings & Weightings

  1. Simon Property Group Inc (SPG): 9.73%
  2. Equity Residential (EQR): 5.09%
  3. Public Storage (PSA): 4.89%
  4. Ventas Inc (VTR): 4.34%
  5. Boston Properties Inc (BXP): 4.29%
  6. HCP Inc (HCP): 4.27%
  7. Vornado Realty Trust Shs of Benef Int (VNO): 3.98%
  8. AvalonBay Communities Inc (AVB): 3.56%
  9. ProLogis Inc (PLD): 3.49%
  10. General Growth Properties Inc (GGP): 2.72%

PSR (PowerShares Active U.S. Real Estate ETF) 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 equal $17 million and average daily trading volume is around 10K shares. As of early November 2011 the annual dividend yield is 2.79% and YTD return 8.34%.


Data as of November 2011

PSR Top Ten Holdings & Weightings

  1. Simon Property Group Inc (SPG): 11.17%
  2. Equity Residential (EQR): 5.74%
  3. Vornado Realty Trust Shs of Benef Int (VNO): 5.35%
  4. HCP Inc (HCP): 5.12%
  5. Boston Properties Inc (BXP): 4.92%
  6. Ventas Inc (VTR): 4.74%
  7. Public Storage (PSA): 4.12%
  8. AvalonBay Communities Inc (AVB): 3.70%
  9. Health Care REIT, Inc. (HCN): 3.05%
  10. ProLogis Inc (PLD): 3.00%

XHB (SPDR Homebuilders Select Industry ETF) 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 5.8M shares. The high trading volume indicates much speculative intraday trading. As of early November 2011 the annual dividend was $.35 making the current yield 2.25% and YTD return -8.15%. The holdings below indicate some strange inclusions like BBBY and WSM--nobody pounding nails there.


Data as of November 2011

XHB Top Ten Holdings & Weightings

  1. Ryland Group, Inc. (RYL): 3.72%
  2. KB Home (KBH): 3.61%
  3. Home Depot, Inc. (HD): 3.60%
  4. Lowe's Companies Inc. (LOW): 3.56%
  5. Bed Bath & Beyond, Inc. (BBBY): 3.56%
  6. Ameron International, Inc. (AMN): 3.51%
  7. Lennar Corporation (LEN): 3.51%
  8. Mohawk Industries, Inc. (MHK): 3.47%
  9. Williams-Sonoma, Inc. (WSM): 3.45%
  10. NVR, Inc. (NVR): 3.44%

The REIT sector particularly has enjoyed a positive first half of 2011 as higher dividend yields attract many income hungry investors. But upon closer inspection, yields overall seem skimpy barely above 3% for the majority in the group.

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 5 years 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. 

As stated with other sectors, remember ETF sponsors must issue and their interests aren't aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

You may address any feedback to:   

The ETF Digest has current positions in the VNQ and IYR.

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

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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