NEW YORK (TheStreet) -- As the residential real estate market continues to remain volatile and highly dependent on the strength of the labor force, some signs of prosperity have emerged in real estate investment trusts enabling the iShares Dow Jones US Real Estate (IYR) - Get iShares U.S. Real Estate ETF Report, the iShares Cohen & Steers Realty Major (ICF) - Get iShares Cohen & Steers REIT ETF Report and the Vanguard REIT ETF (VNQ) - Get Vanguard Real Estate ETF Report to perform relatively well this year.
One reason these exchange-traded funds have been trending upward is because they offer an opportunity to debt that traditional financing institutions like banks and insurance companies are unwilling to take on. Increases in foreclosures, a weak job market and other recessionary factors have put extreme pressure on income-producing properties leading to increased stress on the loans that these properties support. As a result, an opportunity has arisen for REITs to lend, either through debt or equity financing, to the owners of these income properties.
A second reason these ETFs have been performing well is due to the relatively low prices of real estate. As a result of the financial crisis of 2008, real estate markets as a whole took a dive making them cheap and putting the sector in a position destined to go up.
Lastly, the diversification REITs offer to a portfolio adds to their appeal. In general, REITs have relatively low correlations and risk measures when compared to equity indices and give investors a way to mitigate the volatility of the equity markets.
- iShares Dow Jones US Real Estate is up 33.6% over the last year and boasts a yield of 3.56%.
- iShares Cohen & Steers Realty Major is up 37.3% over the last year and has a yield of 3%.
- Vanguard REIT ETF is up 34.9% over the last year and has a yield of 3.61%.
Written by Kevin Grewal of SmartStops in Houston
Grewal has no positions in the securities mentioned
Kevin Grewal is the founder, editor and publisher of
ETF Tutor and serves as the editor at
www.SmartStops.net , where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.