The Stars Align for Real Estate Investment Trusts

By Tom Lydon, ETF Trends

As Treasury yields fall to a 14-month low, real estate investment trust-related exchange traded funds are outperforming the broader equities market and are attracting income-minded investors.

Year-to-date, the Vanguard REIT ETF (VNQ) has gained 17.2%.  In comparison, the S&P 500 Index is up 4.6% this year.

REIT ETFs also held up better than the broader markets over the past month.

“The outperformance compared to the S&P 500 index came from REIT sectors representing a broad range of U.S. economic activity, and was supported by good supply and demand balance in commercial real estate markets around the country,”  NAREIT President and CEO Steven A. Wechsler said in a CNBC article.

Supporting the REITs space as an attractive yield-generating option, benchmark 10-year Treasury yields have dipped to a 14-month low.

“Low interest rates are a positive for REITs because they really offer investors an attractive yield alternative relative to Treasurys or fixed income and you have a growth characteristic to that dividend yield that will go up and increase versus kind of a fixed return over a period of time,” Steve Sakwa of ISI Group said in the article.

For instance, VNQ has a 3.05% 12-month yield.

“I cannot remember a time when you had such a confluence of strong real estate fundamentals, relatively disciplined supply, good demand and accommodative capital markets,” Ross Smotrich of Barclays Capital said in the article.

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The Vanguard REIT ETF (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current yield on the portfolio is 5.50% and year to date the portfolio is up 8.95% (as of 9 August 2014).

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.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.