Despite the second wave of COVID-19 cases, the US real estate market's resilience has continued in recent weeks. The monthly NAHB/Wells Fargo Housing Market Index (HMI), which takes "the pulse of the single-family housing market," has shown another strong reading.
Record-low interest rates and a tight supply of available housing inventory have been among the catalysts in the increase in sales numbers. Online real estate platform Zillow (NASDAQ:Z) expects "a 7% increase in home prices through September 2021."
Meanwhile, since early November, positive vaccine news from Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) have also supported the share prices of REITs that focus on offices, retail establishments as well as hospitality and leisure property (such as hotels and resorts).
Yet, many of those commercial REITs are still off their 52-week highs. As many Investing.com readers would well know, various levels of lockdowns stateside have meant shut downs, decreases in rental income as well as limited growth opportunities.
Therefore, any REIT investment with a commercial focus could require further patience on the part of long-term investors. On a more positive side, many of those REITs now offer high yields, appealing to passive income seekers.
We should also highlight that many REIT ETFs include specialized REITs, such as those that focus on communications infrastructure. For instance, the 5G revolution underway and the increased reliance on technology during the current “stay-at-home, work-from-home” trend, have given a significant boost to the shares of data center providers as well as cell tower owners and operators.
In previous weeks, we covered several REIT exchange-traded funds (ETFs), such as the iShares Residential and Multisector Real Estate ETF (NYSE:REZ), the Real Estate Select Sector SPDR (NYSE:XLRE) and the Vanguard Real Estate Index Fund ETF Shares (NYSE:VNQ). Today we extend the discussion to two other funds that could appeal to a range of market participants.
It is likely that during 2021, the red hot housing market could temper off, even if for a short while. However, an ETF that gives access to different parts of the real estate housing industry could offer diversification as well as growth opportunities.
1.iShares U.S. Real Estate ETF
- Current Price: $84.01
- 52 Week Range: $56.27 - $100.75
- Dividend Yield: 3.76%
- Expense Ratio: 0.42%
The iShares US Real Estate ETF (NYSE:IYR) gives access to a diverse range of real estate companies and REITs listed in the US. Since its inception in June 2000, net assets have surpassed $5 billion.
IYR, which has 83 holdings, tracks the Dow Jones US Real Estate Index. However, potential investors may want to note that in late January 2021, the ETF will start tracking a new index, namely a new underlying index, the Dow Jones US Real Estate Capped Index.
In terms of sectors, specialized REITs have the highest weighting (38.48%), followed by residential (14.36%), industrial (10.18%), health care (9.13%) and retail (7.86%), among others. The top ten holdings constitute over 45% of the funds.
American Tower (NYSE:AMT), Prologis (NYSE:PLD), Crown Castle International (NYSE:CCI), Equinix (NASDAQ:EQIX) and Digital Realty Trust (NYSE:NDLR) head the ETF.
Year-to-date, the fund is down about 9%. We believe the specialized, residential and health care REITs are likely to do well in the coming quarters, too. We would like to see IYR's holdings after the change in its benchmark index in the new year. In the case of a continuation of the current sectoral focus, we'd consider buying the dips.
2. Invesco KBW Premium Yield Equity REIT ETF
- Current Price: $21.23
- 52-Week Range: $13.50 - $32.13
- Dividend Yield: 10.28%
- Expense Ratio: 0.35%
The Invesco KBW Premium Yield Equity REIT (NASDAQ:KBWY) provides exposure to US small- and mid-capitalization (cap) equity REITs with competitive dividend yields. The fund started trading in December 2010 and net assets stand close to $200 million.
KBWY, which has 30 holdings, tracks the KBW NASDAQ Premium Yield Equity REIT Index. In terms of sectoral breakdown, commercial REITs lead the list (around 55%), followed by specialized (26%) and real estate (15%).
Over 50% of assets are held in the top ten business. Several of those names include Brookfield Property Reit (NASDAQ:BPYU), Geo Group (NYSE:GEO), American Finance Trust (NASDAQ:AFIN), Preferred Apartment Communities (NYSE:APTS) and Bluerock Residential Growth REIT (NYSE:BRG).
Since the start of the year, KBWY is down over 30%. Those investors who believe operating conditions will improve, especially for small- and mid-cap REITs in the commercial sector, may want to keep the fund on their radar screen.