Three Real Estate Focused ETFs That Have Performed Well
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The ability to find profitable real estate investment programs via mutual funds and ETFs enables the investor the ability to move in and out of such investments without having to go through the lengthy sales process associated with direct property ownership. ETFs that focus on meeting a specific real estate index take on a passive role and acquire the shares of publicly traded REITs that fit the profile and become part of the index.
The real estate investment market is very diverse. Factors such as geographical location, types of properties, local tax incentives, operating industries of commercial tenants, and local banking conditions are just a few that exert influence on how such investments perform. Because real estate tends to be regionally focused, finding ETFs with correspondingly focused indexes is a prudent way to enter into this asset group. Here are three such ETFs.
The iShares Cohen & Steers Realty Majors Index (NYSEMKT: ICF) is designed to track the Cohen & Steers Realty Majors Index. Cohen & Steers is a mutual fund family that has been focused on real estate investments and has added ETFs to its investment offerings to the general public. ICF was started on Jan of 2001 and has a long-term track record that is useful in determining how ICF should perform in all market conditions. ICF holds 31 stocks and the largest holding is placed in Simon Property Group, with 7.78% of fund in this position. The operating expenses are reported at 0.35% and the returns history is attractive. The common factors in all the holdings are the capitalization size and market liquidity. More information on ICF can be found on http://us.ishares.com/product_info/fund/overview/ICF.htm.
The iShares FTSE NAREIT Residential Plus Capped Index Fund (NYSEMKT: REZ) follows the FTSE (Financial Times and London Stock Exchange) NAREIT (National Association of Real Estate Investment Trusts) Residential Plus Capped Index. The majority of the core holdings of REZ are REITs that focus on apartments, healthcare, and self storage. The inception date is May of 2007 and the track record that is forming appears attractive. Operating expense ratio is reported to be 0.48% and there are 48 issues held in REZ. The largest allocation goes to Health Care Property Investors Inc., with 9.84% of the fund in this issue. REZ has done well and is position to take advantage of the increased demand of apartments and projected increased demand of long-term healthcare facilities. Details on REZ can be found on http://us.ishares.com/product_info/fund/overview/REZ.htm
The iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEMKT: REM) follows the FTSE NAREIT Mortgage Capped Index. This is based on REITs that specialize in originating and holding mortgage obligations. The start date of REM is May of 2007 and the returns history is impressive. One caveat, as mortgage rates drop and old mortgages are refinanced, the returning of all capital and interest to the REITs that issued the loans tends to distort actual operational performance. There are 29 issues held in REM and the largest goes to Annaly Capital Management, with 20.34% of the fund in this one REIT. The operating expense ratio is 0.48% and more information on REM can be found on http://us.ishares.com/product_info/fund/overview/REM.htm?fundSearch=true&qt=REM
Accessing REITs directly or via vehicles such as ETFs makes the indirect ownership of real estate easy. Prior to entering into such a strategy the do-it-yourself investor should look deeper than just the returns to make a decision. Close introspection of the underlying properties and cash flows goes a long way in determining if such a REIT or ETF holding REITs is a worthy purchase.
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Jeffrey L (Jeff) Stouffer is associated with Kingsview Asset Management, LLC and manages the Alexandria Virginia office. He has earned the privilege of using the CAIA and CFP® marks and holds several FINRA licenses. As a practicing financial advisor serving the needs of individual and owners of businesses, he believes in using a wide range of strategies including alternative investments. For additional information, he can be contact via email at jeff.stouffer@kingsviewassetmanagement.com
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