Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, and nearly 40 years in the investment business, we can help select those ETFs that matter and may or may not be repetitive. The result is a more manageable list of issues from which to view and make selections.                     

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.

We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another.

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.

Where competitive issues exist and/or repetitive issues available at a fee cost saving we mention those as other choices. New issues are coming to market consistently (especially globally) and sometimes these issues will need to become more seasoned before they may be included at least in our listings.

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.

VNQ (Vanguard REIT ETF) follows the MSCI US REIT Index which covers about 2/3 of all REITs in the U.S. market. The fund was launched in September 2004. The expense ratio is .12%. AUM (Assets under Management) equal $8 billion with average daily trading volume 3M shares. As of early November 2011 the annual dividend was $2.00 making the current yield roughly 3.75% with YTD return 6.24%.

 

Data as of November 2011

VNQ Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 9.41%
  2. Equity Residential (EQR): 4.88%
  3. Public Storage (PSA): 4.53%
  4. ProLogis Inc (PLD): 4.50%
  5. Vornado Realty Trust Shs of Benef Int (VNO): 4.26%
  6. Boston Properties Inc (BXP): 4.19%
  7. HCP Inc (HCP): 4.07%
  8. Host Hotels & Resorts Inc (HST): 3.19%
  9. AvalonBay Communities Inc (AVB): 3.06%
  10. Health Care REIT, Inc. (HCN): 2.49%

IYR (iShares DJ U.S. Real Estate ETF) follows the Dow Jones U.S. Real Estate Index which measures the real estate industry primarily through REITs. The fund was launched in June 2000. The expense ratio is .48%. AUM equal nearly $3 million and average daily trading volume is 13.5M shares. As of early November 2011 the annual dividend was $2.18 making the current yield 3.80% and YTD return 3.75%.

For IYR and VNQ inverse and leveraged ETFs are available from Direxion Shares and ProShares which are linked to highly correlated indexes.

 

Data as of November 2011

IYR Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 9.05%
  2. Annaly Capital Management, Inc. (NLY): 4.53%
  3. Public Storage (PSA): 4.41%
  4. Equity Residential (EQR): 4.29%
  5. HCP Inc (HCP): 4.00%
  6. Vornado Realty Trust Shs of Benef Int (VNO): 3.86%
  7. Boston Properties Inc (BXP): 3.65%
  8. Ventas Inc (VTR): 3.64%
  9. ProLogis Inc (PLD): 3.13%
  10. AvalonBay Communities Inc (AVB): 3.01%

ICF (iShares Cohen & Steers Major Real Estate ETF) follows the Cohen & Steers Realty Majors Index which consists of selected REITs. The fund was launched in January 2001. The expense ratio is .35%. AUM equal $2.3 billion and average daily trading volume is 826K shares. As of early November 2011 the annual dividend is $2.03 making the current yield a little over 3.24% with a YTD return of 8.14%.

 

Data as of November 2011

ICF Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 8.46%
  2. Public Storage (PSA): 7.23%
  3. Equity Residential (EQR): 7.09%
  4. HCP Inc (HCP): 6.60%
  5. Ventas Inc (VTR): 6.59%
  6. Vornado Realty Trust Shs of Benef Int (VNO): 6.38%
  7. Boston Properties Inc (BXP): 6.02%
  8. ProLogis Inc (PLD): 5.10%
  9. AvalonBay Communities Inc (AVB): 4.89%
  10. Health Care REIT, Inc. (HCN): 3.84%

RWR (SPDR DJ Wilshire REIT ETF) follows the Dow Jones U.S. Select REIT Index consists primarily of REITs in commercial real estate. The fund was launched in April 2001. The expense ratio is .25%. AUM equal $1.4 billion and average daily trading volume is 323K shares. As of early November 2011 the annual dividend was $1.95 making the current yield 3.05% with a YTD return 6.96%.

 

Data as of November 2011

RWR Top Ten Holdings
  1. Simon Property Group Inc (SPG): 11.00%
  2. Public Storage (PSA): 5.36%
  3. Equity Residential (EQR): 5.22%
  4. HCP Inc (HCP): 4.86%
  5. Vornado Realty Trust Shs of Benef Int (VNO): 4.70%
  6. Boston Properties Inc (BXP): 4.43%
  7. Ventas Inc (VTR): 4.42%
  8. ProLogis Inc (PLD): 3.80%
  9. AvalonBay Communities Inc (AVB): 3.66%
  10. Health Care REIT, Inc. (HCN): 2.83%

REM (FTSE NAREIT Mortgage REIT ETF) 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 $232 million and average daily trading volume is over 238K shares. As of early November 2011 the annual dividend was $1.45 making the current dividend over 9% with YTD return of -10.59%. The flow-through from many REITs structured in this manner consists of a return of principal often making the yield misleading.

 

Data as of November 2011

REM Top Ten Holdings & Weightings
  1. Annaly Capital Management, Inc. (NLY): 22.01%
  2. American Capital Agency Corp. (AGNC): 10.50%
  3. New York Community Bancorp, Inc. (NYB): 6.25%
  4. Chimera Investment Corporation (CIM): 6.18%
  5. MFA Financial, Inc. (MFA): 4.37%
  6. People's United Financial, Inc. (PBCT): 4.17%
  7. Hatteras Financial Corporation (HTS): 3.31%
  8. Fidelity National Financial Inc. (FNF): 3.30%
  9. Invesco Mortgage Capital Inc (IVR): 2.93%
  10. Hudson City Bancorp, Inc. (HCBK): 2.89%

SCHH (Schwab U.S. REIT ETF) 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 is $157 million and averaged daily trading volume is 123K shares. As of early November 2011 the annual dividend is projected at $.55 making the current yield less than 2.02%. This may be misleading since the fund is quite young. The YTD return over the same period however is roughly -3.91%. 

 

Data as of November 2011

SCHH Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 11.00%
  2. Public Storage (PSA): 5.36%
  3. Equity Residential (EQR): 5.22%
  4. HCP Inc (HCP): 4.86%
  5. Vornado Realty Trust Shs of Benef Int (VNO): 4.69%
  6. Boston Properties Inc (BXP): 4.43%
  7. Ventas Inc (VTR): 4.42%
  8. ProLogis Inc (PLD): 3.80%
  9. AvalonBay Communities Inc (AVB): 3.66%
  10. Health Care REIT, Inc. (HCN): 2.82%

REZ (iShares FTSE NAREIT Residential ETF) 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 $159 million and average daily trading volume is around 59K shares. As of early November 2011 the annual dividend was $1.33 making the current yield 3.01% and YTD return 12.17%.

 

Data as of November 2011

REZ Top Ten Holdings & Weightings
  1. Equity Residential (EQR): 9.06%
  2. HCP Inc (HCP): 8.45%
  3. Ventas Inc (VTR): 8.44%
  4. Public Storage (PSA): 8.44%
  5. AvalonBay Communities Inc (AVB): 6.37%
  6. Health Care REIT, Inc. (HCN): 4.91%
  7. UDR Inc (UDR): 4.23%
  8. Essex Property Trust (ESS): 4.21%
  9. Camden Property Trust (CPT): 4.20%
  10. Senior Housing Properties Trust (SNH): 3.89%

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: feedback@etfdigest.com   

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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