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Tired of Plain Vanilla, Investors Turn to Spicy Real Estate Fund

“There’s been a shift in perception that maybe the S&P 500 isn’t the best game in town anymore”

By Sarah Ponczek

(Bloomberg) --Too much vanilla is growing tiresome for yield-hungry investors. So they’re trying out more exotic flavors -- including a particularly hot real estate exchange traded fund.

The iShares U.S. Real Estate ETF, ticker IYR, took in $425 million last week, the largest weekly inflow in almost a year. The fund hadn’t seen more than $400 million since last December.

IYR has trailed the broader S&P 500 over the last year, making the real estate ETF a relatively cheap option for investors looking to capitalize on a value play, said Matt Schreiber, president and chief investment strategist at WBI Investments. That and the search for higher yields is why his firm now owns almost 30,000 shares of the fund.

“There’s been a shift in perception that maybe the S&P 500 isn’t the best game in town anymore,” Schreiber said. “So you’ve seen a lot of money flowing away from the vanilla products that everybody’s been invested in in the last few years.”

This thinking has paid off as real estate has turned around of late. The sector is the best performer in the S&P 500 Index over the past month, gaining more than 4 percent and handily outpacing the broader market.

“For us it’s about the cash flow, and typically the real estate sector comes with some higher yields,” Schreiber said. “Cash flow is king, we love cash flow. It helps to satisfy investors’ need for income.”

The iShares real estate ETF may also have a leg up on some of its competitors because of its liquidity. Although the Vanguard REIT ETF, ticker VNQ, has more than seven times the assets of IYR, its 30-day average trading volume is half that of the iShares fund.

“iShares has a suite of sector ETFs that are sizable from an asset perspective but tend to not necessarily trade as frequently,” said Todd Rosenbluth, director of ETFs and mutual funds at CFRA. That’s not the case for IYR “and it has a higher expense ratio, so clearly investors are looking beyond the expense ratio to put money to work in this.”

 
To contact the reporter on this story: Sarah Ponczek in New York at [email protected] To contact the editors responsible for this story: Jeremy Herron at [email protected] Eric J. Weiner, Andrew Dunn

TAGS: Real Estate
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