With residential real estate showing signs of a budding recovery in certain markets, let’s look at one of my favorite funds in the sector, iShares FTSE NAREIT Residential Plus Capped Index ETF (REZ). REZ offers a way to invest in the recovery of the real estate market. One distinctive characteristic of REZ, compared with many other funds, is that a big chunk of its holdings include apartments.
In fact, nearly half of REZ’s holdings feature apartments, 45.05%. Other sizable portions of the fund feature self storage, 16.9%, and health-care real estate, 36.12%. With home prices in many markets still on the decline, sectors such as apartments and self storage usually do well. The health-care industry typically is fairly stable, regardless of the current economic state of the country. The fund specifically seeks investment results that correspond generally to the price yield performance, before fees and expenses, of the FTSE NAREIT All Residential Capped Index.
Below you can see the performance of the REZ share price for the past 12 months. REZ clearly seems to rebounding, after pulling back in February.
According to the National Apartment Association, renter-occupied households account for 30.6% of allU.S.households and generate more than $325 billion in annual rental revenues. With the current spread between mortgage prices and rental rates, many observers consider rental units to be more affordable than buying homes. Furthermore, Default Research, Inc. expects 1.5 million homeowners to lose their houses to foreclosure annually for the next three years. As a result, many apartment complexes around the country are filling up, and demand for apartments still is strong.
REZ’s top five holdings and their weights in the fund, as of March 13, were: Equity Residential, 11.48%; Public Storage, 10.86%; HCP Inc., 10.64%; Ventas Inc., 10.57%; and AvalonBay Communities Inc., 4.57%. At year-end 2011, the fund’s one-year performance reached 15.85%, while its three-year gain hit 22.74%.
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