ETF Talk: Ride Resurgent Real Estate

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

This week, we unveil an easy way to invest in real estate to ride the recovery in the housing market. After all, to build a house, you need to put it on land. This ETF Talk dovetails nicely with the ones from the previous two weeks that focused on industrials and housing, two industries set to profit from this year’s projected housing boom. The exchange-traded fund (ETF) that I like for tapping the real estate sector’s rebound is the SPDR Dow Jones REIT (RWR).

The initials REIT stand for real estate investment trust. This non-diversified fund seeks investment results which, before fees and expenses, correspond generally to the total return performance of the Dow Jones U.S. Select REIT Index.

Following an 11.03% rise last year, RWR is up 3.21% so far in 2013. With quarterly dividends producing a yield of 2.95%, this fund offers solid income alongside capital appreciation. Housing should continue to do well, as long as the Fed continues its easy-money policies. For that reason, RWR should perform well, as the following chart shows.

Explicitly a trust which invests in real estate, this REIT has 100% of its holdings in the real estate sector. Its top ten holdings make up almost half of those assets at 49.1%. The largest chunk of this portfolio belongs to Simon Property Group as of the close of trading on Feb. 12, with 11.60% of the fund’s holdings. The next four companies, in terms of assets held in the fund on Feb. 12, are Public Storage, 5.21%; HCP, Inc., 4.90%; Ventas, Inc., 4.64%; and Equity Residential, 4.26%.

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As the improving labor market and low mortgage rates contribute to the housing recovery, real estate and funds such as RWR should benefit. Include the aforementioned Fed policies, and you have a recipe for real estate success. Even if the housing rebound does not quite reach expected levels, companies in related sectors such as real estate still should show improved share-price performance, earnings and revenues.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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