Top 10 U.S. Real Estate Sector ETFs

There is currently an expanding list of nearly 20 ETFs oriented to primarily REITs (Real Estate Investment Trusts) with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.

Despite the overall poor condition of U.S. real estate markets REITs gain more acceptance given their unique characteristics. REITs are generally divided into commercial and shopping malls, office properties, hospitality and apartment rentals. Most of these sectors are doing just okay while there is a boom in apartment construction and rentals making that sector healthy. Many REITs offer very good yields and demographics in the U.S. especially feature an investor appetite for higher dividends. However, investors should be careful to remember often dividends can be combined with return of principal making for potential tax considerations. 

ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also included are some so-called "enhanced" indexes that attempt to achieve better performance through more active management of the index.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Premium members to the

ETF Digest

receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we're sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.

Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity

Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity

Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity

Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

#10: PowerShares Active U.S. Real Estate ETF (PSR) g>

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 $24 million and average daily trading volume is around less than 5K shares. As of early February 2012 the annual dividend yield was .68% with YTD return 7.77%. The one year return was 14.03%.

Data as of First Quarter 2012

PSR Top Ten Holdings & Weightings

1. Simon Property Group Inc (SPG): 11.18%

2. Ventas Inc (VTR): 5.85%

3. Equity Residential (EQR): 5.52%

4. Vornado Realty Trust (VNO): 5.31%

5. Host Hotels & Resorts Inc (HST): 3.76%

6. AvalonBay Communities Inc (AVB): 3.70%

7. Public Storage (PSA): 3.59%

8. Health Care REIT, Inc. (HCN): 3.41%

9. HCP Inc (HCP): 3.29%

10. Boston Properties Inc (BXP): 2.91%

#9: iShares NARETI Real Estate 50 ETF (FTY)

FTY follows the FTSE NAREIT Real Estate 50 Index which measures the performance of the large cap real estate sector of the U.S. equity market. The fund was launched in May 2007. The expense ratio is .48%. AUM equal $55 million and average daily trading volume is 18K shares.

As of early February 2012 the annual dividend yield was 3.98% and YTD return 7.75%. The one year return was 12.46%.

Data as of First Quarter 2012

FTY Top Ten Holdings & Weightings

1. Simon Property Group Inc (SPG): 10.83%

2. Public Storage (PSA): 4.92%

3. HCP Inc (HCP): 4.82%

4. Equity Residential (EQR): 4.81%

5. Ventas Inc (VTR): 4.55%

6. Annaly Capital Management, Inc. (NLY): 4.43%

7. Boston Properties Inc (BXP): 4.22%

8. Vornado Realty Trust (VNO): 4.06%

9. ProLogis Inc (PLD): 3.76%

10. AvalonBay Communities Inc (AVB): 3.56%

#8: iShares FTSE NAREIT Residential ETF (REZ)

REZ follows the FTSE NAREIT All Residential Capped Index which measure the residential real estate, healthcare and self storage sectors of the U.S. market. The fund was launched in May 2007. The expense ratio is .48%. AUM equal $175 million and average daily trading volume is around 70K shares.

As of early February 2012 the annual dividend yield was 3.13% with YTD return 5.61%. The one year return was 18.83%.

Data as of First Quarter 2012

REZ Top Ten Holdings & Weightings

1. Public Storage (PSA): 11.55%

2. HCP Inc (HCP): 11.32%

3. Equity Residential (EQR): 11.28%

4. Ventas Inc (VTR): 10.67%

5. Health Care REIT, Inc. (HCN): 4.61%

6. UDR Inc (UDR): 4.50%

7. AvalonBay Communities Inc (AVB): 4.46%

8. Essex Property Trust (ESS): 3.97%

9. Camden Property Trust (CPT): 3.70%

10. BRE Properties, Inc. (BRE): 3.15%

#7: iShares

FTSE NAREIT Mortgage REIT ETF (REM)

REM follows the FTSE NAREIT All Mortgage Capped Index which consists of the residential and commercial real estate, mortgage finance and savings associations in the U.S. equity market. The fund was launched in May 2007. The expense ratio is .48%. AUM equal $260 million and average daily trading volume is over 238K shares.

As of early February 2012 the annual dividend yield was 12.21% with YTD return 9.00%. The one year return was -1.55%.

NOTE: Dividend yields include return of principal and yields are dependent on each investor's income tax situation.

Data as of First Quarter 2012

REM Top Ten Holdings & Weightings

1. Annaly Capital Management, Inc. (NLY): 22.63%

2. American Capital Agency Corp. (AGNC): 15.49%

3. Chimera Investment Corporation (CIM): 6.45%

4. Starwood Property Trust Inc (STWD): 4.55%

5. Two Harbors Investment Corp (TWO): 4.53%

6. Hatteras Financial Corporation (HTS): 4.51%

7. MFA Financial, Inc. (MFA): 4.50%

8. Invesco Mortgage Capital Inc (IVR): 4.37%

9. CYS Investments Inc (CYS): 3.78%

10. Capstead Mortgage Corporation (CMO): 3.70%

#6: Schwab U.S. REIT ETF (SCHH)

SCHH follows the Dow Jones U.S. Select REIT Index. The fund is quite new being launched in January 2011. The expense ratio is .13%. It should be noted that uniquely the ETF allows investors to trade this commission free for Schwab customers. A similar ETF was just launched by FocusShares (FRL) featuring a similar arrangement with Scottrade.

AUM equal $252 million and average daily trading volume is 124K shares. As of early February 2012 the current distribution dividend yield was 2.12% with YTD return 9.14%. The one year return was 14.38%.

Data as of First Quarter 2012

SCHH Top Ten Holdings & Weightings

1. Simon Property Group Inc (SPG): 11.27%

2. Public Storage (PSA): 5.66%

3. HCP Inc (HCP): 5.02%

4. Equity Residential (EQR): 5.01%

5. Boston Properties Inc (BXP): 4.33%

6. Ventas Inc (VTR): 4.31%

7. Vornado Realty Trust (VNO): 4.22%

8. ProLogis Inc (PLD): 3.91%

9. AvalonBay Communities Inc (AVB): 3.67%

10. Host Hotels & Resorts Inc (HST): 3.11%

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