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%

#5: First Trust REIT ETF (FRI)

FRI 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 $403 million and average daily trading volume is around 260K shares.

As of early February 2012 the annual dividend yield was 2.20% with YTD return 9.17. The one year return was 13.54%.

Data as of First Quarter 2012

FRI Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 10.37%
  2. Public Storage (PSA): 5.31%
  3. Equity Residential (EQR): 4.65%
  4. HCP Inc (HCP): 4.47%
  5. Ventas Inc (VTR): 4.31%
  6. Boston Properties Inc (BXP): 3.98%
  7. Vornado Realty Trust (VNO): 3.90%
  8. ProLogis Inc (PLD): 3.63%
  9. AvalonBay Communities Inc (AVB): 3.33%
  10. Host Hotels & Resorts Inc (HST): 2.84%

#4: SPDR DJ Wilshire REIT ETF (RWR)

RWR 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 February 2012 the annual dividend yield was 3.15% with YTD return 9.30%. The one year return was 14.62%.

Data as of First Quarter 2012

RWR Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 11.26%
  2. Public Storage (PSA): 5.65%
  3. HCP Inc (HCP): 5.01%
  4. Equity Residential (EQR): 5.01%
  5. Boston Properties Inc (BXP): 4.32%
  6. Ventas Inc (VTR): 4.31%
  7. Vornado Realty Trust (VNO): 4.22%
  8. ProLogis Inc (PLD): 3.91%
  9. AvalonBay Communities Inc (AVB): 3.66%
  10. Host Hotels & Resorts Inc (HST): 3.11%

#3; iShares Cohen & Steers Major Real Estate ETF (ICF)

ICF 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 February 2012 the annual dividend yield was 2.97% with YTD return 8.74%. The one year return was 14.41%.

 

Data as of First Quarter 2012

ICF Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 7.89%
  2. Public Storage (PSA): 7.65%
  3. Equity Residential (EQR): 6.79%
  4. HCP Inc (HCP): 6.78%
  5. Ventas Inc (VTR): 6.38%
  6. Boston Properties Inc (BXP): 5.88%
  7. Vornado Realty Trust (VNO): 5.70%
  8. ProLogis Inc (PLD): 5.25%
  9. AvalonBay Communities Inc (AVB): 4.94%
  10. Host Hotels & Resorts Inc (HST): 4.20%

#2: iShares DJ U.S. Real Estate ETF (IYR)

IYR 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 February 2012 the annual dividend yield was 4.27% with YTD return 3.83%. The one year return was 10.42%.

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 First Quarter 2012

IYR Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 8.83%
  2. American Tower Corp A (AMT): 5.51%
  3. Public Storage (PSA): 4.43%
  4. HCP Inc (HCP): 3.93%
  5. Equity Residential (EQR): 3.93%
  6. Annaly Capital Management, Inc. (NLY): 3.62%
  7. Boston Properties Inc (BXP): 3.39%
  8. Ventas Inc (VTR): 3.38%
  9. Vornado Realty Trust (VNO): 3.31%
  10. ProLogis Inc (PLD): 3.07%

#1: Vanguard REIT ETF (VNQ)

VNQ 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 February 2012 the annual dividend yield was 3.55% with YTD return 9.17%. The one year return was 14.26%.

 

Data as of First Quarter 2012

VNQ Top Ten Holdings & Weightings
  1. Simon Property Group Inc (SPG): 10.33%
  2. Public Storage (PSA): 5.17%
  3. Equity Residential (EQR): 4.89%
  4. HCP Inc (HCP): 4.56%
  5. Ventas Inc (VTR): 4.33%
  6. Boston Properties Inc (BXP): 4.15%
  7. Vornado Realty Trust Shs of Benef Int (VNO): 3.96%
  8. ProLogis Inc (PLD): 3.53%
  9. AvalonBay Communities Inc (AVB): 3.43%
  10. Health Care REIT, Inc. (HCN): 2.65%

REITs have regained their popularity from investors seeking income. Some residential oriented REITs have done extremely well but some are suggesting owning versus renting is now becoming the more attractive alternative. It remains to be seen if this bears out over time. Remember many REIT structures allow for return of principal which may have negative tax consequences to unaware investors.

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned. 

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The ETF Digest is long VNQ.

(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.