That’s the question asked by John Spence when looking at the suprising outperformance of exchange traded funds that track real estate stocks.
Through July 29, the SPDR Dow Jones REIT ETF (RWR) was up 15% compared to a negative 1% performance by the S&P 500 year-to-date.
Other popular REIT ETFs include the Vanguard REIT ETF (VNQ) and iShares Dow Jones U.S. Real Estate Index Fund (IYR).
Gold, REIT and Bond ETFs are trading at premiums that logically belong in another world.
That’s according to the Wall Street Journal’s Michael Corkery in his column The Fantasy World of REITs and Gold. Corkery writes that REITS are trading at a premium to their underlying assets for the first time since the peak of the commerical real estate boom in 2007.
REIT premiums don’t make sense in a time when office buildings are emptied by rising job losses and the Federal Reserve is warning that the real estate values are likely to plummet in the near future.
REITs seem to be attracting investors in search of higher yields than what they can get from Treasuries.
The largest REIT ETF is the $1.6 billion Cohen & Steers Realty Majors (ICF) . An alternative REIT ETF choice is the $1.2 billion DJ Wilshire REIT ETF (RWR).
REIT investors are faring better than the REITs themselves according to the WSJ’s Donna Kardos Yesalavich.
In the article, REITs May Face Trouble, but REIT Shares Don’t, Yesalavich points out that REITs have rallied 90% off 18 year lows set in March, yet remain 60% below February 2007 highs. Despite continued troubles in the commercial real estate market, the improving outlook for debt refinancing means that fewer REITs are likely to be forced into bankruptcy.
Several options for gaining exposure to REITs are available for U.S. investors. The Vanguard REIT ETF (VNQ) tracks a benchmark of U.S. property trusts that covers about two-thirds of the value of the entire U.S. REIT market. Another popular REIT ETF is the DJ Wilshire REIT ETF (RWR) which invests in commercial REITs and is rebalanced monthly.
See the report Investing in REITs with ETFs for more on REIT ETFs.
From Barry Ritholz’s Big Picture…John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the winners for the week were dominated by real estate funds, including iShares FTSE NAREIT Industrial/Office (FIO) (+19.0%), Cohen & Steers Realty Majors Index (ICF) (+17.8%) and SPDR DJ REIT Index (RWR) (+17.1%).
See Investing in REITS with ETFs for more.
Market Watch reporter Stacey Delo interviewed Kensington Investment Group CIO and president John Kramer to get his thoughts on putting cash to work in a post-Lehman world.
Kramer’s advice:
Commercial real estate ETFs include the DJ Wilshire REIT ETF (RWR) which holds commercial real estate REITs and rebalances monthly. The FTSE NAREIT Industrial/Office Index Fund (FIO) specializes in industrial and office REITs.
For a more complete look at REITs, see Investing in REITs with ETFs.
For infrastructure ETFs, check out SPDR FTSE-Macquarie Global Infrastructure 100 ETF (GII) which owns 255 stocks in Pipelines, Transportation Services, Electricity, Gas Distribution, Multi-utilities, Water and Telecommunications Equipment.
Also look at the S&P Global Infrastructure Index Fund (IGF) which tracks performance of the stocks of large infrastructure companies around the world.
