U.S. Investing

Building a Barricade Against Inflation Via Real Estate ETF

After about a decade of enjoying a strong economy, low prices and sky-high job numbers, inflation is rearing its head once again.

The current inflation is mainly connected to the Fed’s easy-money policies and ever-growing amounts of government spending to combat the economic effects of the COVID-19 pandemic. The most recent Consumer Price Index (CPI) report showed a 4.2% increase in April from a year earlier, up from 2.6% for the year ended in March. Consumer prices increased a seasonally adjusted 0.8% in April from March.

More specifically, energy and food prices climbed to show their biggest respective hikes in months. To take advantage of these trends and to help mitigate the corrosive impact of inflation, I have identified four exchange-traded funds (ETFs) that might be worth considering. Last week, I discussed iShares TIPS Bond ETF (NYSEARCA:TIP). This week, I will delve into the Vanguard Real Estate ETF (NYSEARCA:VNQ).

Much like gold, it is common to see property prices increase due to inflation. In turn, landlords and real estate companies typically increase their rates on both commercial and residential real estate during such times. VNQ is one of the largest and most liquid real estate ETFs.

The fund tracks a broad index that captures a large portion of the U.S. real estate market and stands out from its peers as it shies away from specialized real estate investment trusts (REITs) and favors commercial REITs. The fund holds a wide array of related companies, including telecom property operator American Tower Corp. (AMT), warehouse giant Prologis (PLD) and mall owner Simon Property Group (SPG). VNQ seeks to closely track the return of the MSCI US Investable Market Real Estate 25/50 Index, and it offers high potential for investment income and some growth. Moreover, as a result of the portfolio’s good management, the cost of owning VNQ has been even lower than its stated expense ratio.

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The fund has an expense ratio of 0.12% and a dividend yield of 3.24%. An incredibly liquid fund, VNQ has an average daily volume of $404.04 million and $37.93 billion in assets under management.

Year to date, VNQ has been privy to a relatively strong performance. The fund incurred a significant dip in November 2020, but quickly regained momentum and has been climbing since then. Currently, the fund is trading at the high end of its 52-week range and opened today, May 12, at $98.80.

Chart courtesy of StockCharts.com.

The fund’s top holdings include Vanguard Real Estate II Index (VRTPX), 11.88%; American Tower Corp. (AMT), 7.12%; Prologis Inc. (PLD), 5.25%; Crown Castle International Corp. (CCI), 4.92%; and Equinix Inc. (EQIX), 4.04%.

In summation, Vanguard Real Estate ETF (NYSEARCA:VNQ) is an extremely large and liquid fund that holds a wide array of commercial REITs. Further, it offers a high potential for investment income and some growth. So, while VNQ may be appealing for investors looking to explore the REIT space, it is important to conduct independent research to ensure a fund fits personal goals and risk tolerance.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.