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Catching A Great REIT Wave

It’s been a good ride. And it may not be over.

Billionaire real estate entrepreneur Jeff Greene once said, “You make 10% of your money because you’re a genius and 90% because you catch a great wave.” Thanks to a recent wave, shareholders in many real estate investment trusts (REITs) are starting to look like Rhodes scholars.

Year to date, broad-based REIT ETFs are up an average of 17%.  Just last week, in fact, four seasoned funds hit new highs. The question before investors now is this: Is there more room on the upside for these portfolios?

Gaining 18.1%, the iShares Cohen & Steers REIT ETF (BZX: ICF) is tops in year-to-date performance. A committee-selected amalgam of 30 companies dominant in their respective property sectors, the ICF portfolio has the technical wherewithal to rise another 36% over the intermediate term. ICF spins off dividends at a 2.67 percent annualized rate for an annual holding cost of 34 basis points.

Another BlackRock product, the iShares U.S. Real Estate ETF (NYSE Arca: IYR), has picked up 17.4% this year while paying out a 2.99% annual dividend. With an expense ratio of 43 basis points, the 114-stock portfolio is the most costly of the lot. IYR has the chutzpah to appreciate another 38% going forward without skipping a beat.

The other REIT ETFs making new highs are two direct competitors: Both track the 96-stock Dow Jones U.S. Select REIT Index but do so at a vastly different cost.

A paltry 7 basis point expense ratio gives a decided boost to the Schwab U.S. REIT ETF (NYSE Arca: SCHH), which has appreciated 16.8% in 2019 and seems set to grow 34% further according to the charts. The fund’s dividend payout of 2.82% is attenuated by its money market holdings.

The older SPDR Dow Jones REIT ETF (NYSE Arca: RWR) spins off a 3.63% dividend and has produced a year-to-date gain of 16.5 percent. The technical upside from here appears to be 33 percent.

The year-to-date returns earned by these four ETFs are part of broader trend begun in 2018. Because of their modest correlations, these REIT ETFs held up better as the rest of the stock market started gasping for air last year.


REIT performances

From the chart and the table above, you can see the obvious appeal of the REIT ETFs. Of course, REITs haven’t always outperformed the broad stock market. For now, though, they’re a definite a definite bright spot in the portfolios of investors lucky enough, or smart enough, to have caught a great wave.

Brad Zigler is WealthManagement's Alternative Investments Editor. Previously, he was the head of Marketing, Research and Education for the Pacific Exchange's (now NYSE Arca) option market and the iShares complex of exchange traded funds.

TAGS: Real Estate
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