Real Estate ETF Performance Review from Market Bottom

by on May 13, 2014 | ETFs Mentioned:

The ETF universe has undeniably grown by leaps and bounds over the past few years, but even more impressive are some of the funds’ stellar track records since the depths of the most recent financial crisis. In light of the U.S. bull market turning five years old in March of 2014, we’ve been taking a look back to the market bottom in 2009 and reviewing how major assets have performed since the dust settled. 

Thus far we have reviewed the following:

Today, we’re continuing with this theme and recapping the performances of various real estate ETFs since the U.S. equity market bottomed out; please note that the returns below are cumulative and based on adjusted-monthly closing prices spanning 3/1/2009 through 5/1/2014.

Real Estate ETFs Performance Review: 5 Years After the Bottom

There are a number of Real Estate ETFs that have been around for over five years and likewise have lived through the most recent financial crisis; the funds we’ve selected for comparison below are each deemed to be representative of the various sub-sectors in the domestic real estate market. 

Some of the key takeaways from this performance review are:

  • The Broad real estate market, as represented by the Vanguard REIT ETF (VNQ, A), has been consistently charging higher since the market bottom; this ETF has remained as the second best performer throughout most of the past five years. 
  • The Mortgage sub-sector, as represented by the iShares Mortgage Real Estate Capped ETF (REM, A), has been a consistent laggard since the market bottom by a wide margin; given that one of the root causes of the financial crisis largely stemmed from sub-prime mortgage loans, it’s not terribly surprising to see this corner of the real estate market still struggling. 
  • The Residential sub-sector, as represented by the iShares Residential Real Estate Capped ETF (REZ, C), has virtually mirrored VNQ’s performance; this ETF features heavy exposure to the health care segment, which is among the least cyclical corners in the real estate market, and is perhaps the reason why the fund has been able to steadily charge higher. 
  • The Industrial sub-sector, as represented by the iShares Industrial/Office Real Estate Capped ETF (FNIO, C+), has for the most part been the second worst performing segment since the market bottom; seeing as how the industrial/office segment is among the more cyclical corners of the real estate market, it’s not terribly surprising to see this ETF struggling to keep pace with the rest of the pack in light of the sluggish economic recovery at hand. 
  • The Retail sub-sector, as represented by the iShares Retail Real Estate Capped ETF (RTL, B-), has consistently been the best performer since the market bottom; retail REITs were harshly punished alongside mortgage REITs during the 2008 downturn, but because most retail tenants boasted a fundamentally-sound credit profile during the crisis, this segment was able to recovery much more swiftly and maintain its lead over the rest of the group. 

The Bottom Line

ETFs have made it possible to tap into virtually any segment within the investable universe through the use of a single ticker. This sort of granularity has proven to be useful, but investors must also be aware of the various nuances associated with each sub-sector before making assumptions about an entire market segment. In other words, the price drivers and risks associated with one particular corner of the real estate market may not be the same factors that influence other sub-sectors within the same market.  

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Disclosure: No positions at time of writing.