Dividend ETFs: Public REITs Offer Good Value While Economy Recovers

Includes: DEM, ICF, IYR, RWX, VNQ
by: MyPlanIQ

Dividend ETFs performed well last week: leading the pack are the emerging market stocks (NYSEARCA:EEM) and emerging market dividend stocks (NYSEARCA:DEM), gaining 2.38% and 1.9% respectively. International REITs also did well, gaining 2.04%. For more detailed performance, please refer to here.

Among dividend ETFs, publicly traded REITs (IYR, ICF, VNQ) continue their strong showing: International REITs (NYSEARCA:RWX) rose most, now placed on the second spot while U.S. REITs ranked the 3rd in our weekly trend table for dividend REITs.

Assets Class Symbols 03/02
SPDR S&P 500 SPY 10.12% 10.71% v
SPDR DJ Wilshire Intl Real Estate RWX 10.04% 9.42% ^
iShares Dow Jones US Real Estate IYR 10.0% 11.56% v
Vanguard High Dividend Yield Indx VYM 9.39% 10.08% v
iShares Dow Jones Intl Select Div Idx IDV 9.23% 9.51% v
PowerShares Intl Dividend Achievers PID 9.12% 8.54% ^
Vanguard Dividend Appreciation VIG 9.09% 9.73% v
iShares MSCI EAFE Index EFA 8.35% 8.21% ^
First Trust Value Line Dividend Index FVD 7.75% 7.75% v
WisdomTree Emerging Market Equity Income DEM 7.59% 6.27% ^
iShares Dow Jones Select Dividend Index DVY 7.38% 7.37% ^
SPDR S&P Dividend SDY 7.14% 7.22% v
PowerShares HighYield Dividend Achievers PEY 6.33% 6.16% ^
iShares MSCI Emerging Markets Index EEM 5.21% 3.79% ^
iShares S&P U.S. Preferred Stock Index PFF 3.4% 3.29% ^

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

The publicly traded REITs have been strong since the beginning of 2010. These commercial property management companied came out of the great recession with several advantages:

  • They were able to access to low interest rate capital. According to NAREIT, public REITs raised $47 billion in 2010, almost reached to the record capital raised in 2006 ($49 billion). What is more important is that in 2009, during the market low, they raised $34 billion. Using the low cost capital raised, they were able to take advantage of fire sales by private REITs that were overleveraged.
  • Going forward, with economy recovering and the increasing bussiness activities, commercial rentals will increase, enabling REITs to increase their earnings.

The following table compares the performance of two portfolios using a tactical asset allocation strategy: Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate has four candidate funds (SPY, EFA, EEM, AGG), representing four core assets (US. Equity, International Equity, Emerging Market Equity, Fixed Income). Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate adds US REITs (NYSEARCA:IYR) as a fifth asset candidate.

Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate 11% 97% 10% 85% 13% 85%
Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate 4% 47% 6% 53% 9% 53%

The above clearly illustrates the advantage of REITs in portfolio building. It offers 4% extra annual return. This can be seen further by looking at the holdings of Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate: it has held REITs (NYSEARCA:VNQ) since 12/2009, getting extra performance boost because of the out performance of REITs over other risk assets in the past one year.

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I am long IYR and SPY.