Rate-Sensitive Real Estate Investment Trusts Rebound

By Tom Lydon, ETF Trends

Dragged to laggard status during last year’s spike in 10-year Treasury yields, interest rate-sensitive real estate investment trusts (REITs) and the exchange traded funds that hold those stocks have rebounded in noticeable fashion in 2014.

Year-to-date, the Vanguard REIT ETF (VNQ), the largest REIT ETF by assets, is up by nearly 11%.

REITs and REIT ETFs have gained favor with income investors “because they offer attractive yields with an alternative asset class that can produce excellent returns in this type of stable-interest-rate environment. However, the downside is that they are susceptible to declines if we get back into another rotation of higher interest rates and weakening housing data,” according to FMD Capital Management.

While there is no denying the group’s sensitivity to rising interest rates, one that often prompts concerns about REITs’ ability to continue growing dividends, investors have returned to REIT ETFs in a big way in 2014’s more sanguine rate environment.

As of March 6, real estate ETFs attracted $3 billion in asset inflows, or 31% of all money going into sector-based ETFs, Bloomberg reports. Real estate ETFs have brought in 43% more than the net deposits the funds saw over all of 2013.

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Vanguard REIT (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current VNQ dividend yield is 2.77%.

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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