After suffering tremendous losses during the 2008 housing bubble, real estate investments have managed to claw their way back and are showing promising signs once again. As investors’ fears over housing have abated, interest in this corner of the market has come to the forefront once again, as this asset class offers key diversification benefits and attractive return potential [see also Select Sector SPDR ETFs Head-To-Head].
For those looking to utilize the ETF structure to add exposure to this industry, there are several hyper-targeted and broad-based options. However, determining which strategy to take can be difficult; some investors choose to cast a wider net over the space, while others may wish to establish a tactical tilt towards specific sub-sectors of the real estate industry.
There are over 30 different real estate-focused ETFs investors can choose from, with several products offering exposure tilted towards a particular sub-sector, such as residential, retail or industrial, and others casting a wider net over the entire space.
The chart below highlights five real estate ETFs, comparing their performances across various time frames, including year-to-date returns [see also U.S. Real Estate ETFs Battle For Inflows: IYR vs. ICF vs. RWR]:
- REIT ETF (VNQ, A+)
- FTSE NAREIT Industrial/Office Capped Index Fund (FNIO, C+)
- FTSE NAREIT Mortgage REITs Index Fund (REM, A)
- FTSE NAREIT Residential Index Fund (REZ, C+)
- FTSE NAREIT Retail Index Fund (RTL, A-)
Across the board, 2012 was a relatively good year for real estate ETFs, with most funds delivering attractive double-digit returns, though not as high as those seen in 2010. Year-to-date, however, this industry has struggled to gain momentum, with mortgage REITs (REM) sliding into negative territory.
But with housing data showing promising signs so far in 2013, real estate ETFs may still have time to make a turn around. Currently, the retail sector fund (RTL) is just slightly ahead of its industry.
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Disclosure: No positions at time of writing.