U.S. REITs Offer Attractive Returns as Real Estate Market Normalizes

Includes: ICF, IYR, RWR, VNQ
by: MyPlanIQ

Building and maintaining a long term, good performance portfolio demands diversification and some attention to market conditions. Real Estate is a key asset class that can be misunderstood but plays a part in a diversified portfolio. This article looks at US REITs.

Among dividend paying equity ETFs, U.S. REITs (NYSEARCA:IYR) outperformed all other major asset classes for the week ended 4/20/2011. Strength in U.S. REIT growth has lasted for several months now. For more detailed performance, please look here.

Dividend Stock ETF Trend:

Description Symbol 1 Week 13 Weeks
iShares Dow Jones US Real Estate IYR 3.44% 7.95%
SPDR DJ Wilshire Intl Real Estate RWX 2.1% 2.77%
WisdomTree Emerging Market Equity Income DEM 2.05% 6.37%
iShares MSCI Emerging Markets Index EEM 1.68% 4.74
Vanguard High Dividend Yield Indx VYM 1.67% 6.28%
Vanguard Dividend Appreciation VIG 1.59% 5.98%
SPDR S&P Dividend SDY 1.53% 5.01%
iShares MSCI EAFE Index EFA 1.48% 3.77%
iShares Dow Jones Select Dividend Index DVY 1.47% 5.89%
PowerShares Intl Dividend Achievers PID 1.41% 6.41%
First Trust Value Line Dividend Index FVD 1.39% 5.72%
iShares Dow Jones Intl Select Div Idx IDV 1.34% 8.57%
SPDR S&P 500 SPY 1.25% 4.23%
PowerShares HighYield Dividend Achievers PEY 1.18% 1.71%
iShares S&P U.S. Preferred Stock Index PFF 0.51% 3.35%

U.S. REITs (NYSEARCA:VNQ), (IYR), (NYSEARCA:ICF), and (NYSEARCA:RWR) have risen along with a global economic recovery and a return to normalized home ownership levels among U.S. consumers. The sector suffered major losses during the 2008 economic crisis: Vanguard REIT ETF (VNQ) declined 37%, iShares Cohen & Steers Realty (ICF) was down 42%, and both iShares Dow Jones U.S. Real Estate (IYR) and SPDR Dow Jones REIT (RWR) were down 40%. All four U.S. REIT ETFs have seen growth between 21.31% and 23.01% in the past year.


Description Symbol 1 Year 3 Years 5 Years
Vanguard REIT Index ETF VNQ 21.31% 2.48% 3.45%
iShares Dow Jones US Real Estate IYR 21.62% 1.23% 0.67%
iShares Cohen & Steers Realty ICF 23.01% -1.81% 0.41%
SPDR Dow Jones Real Estate RWR 21.53% -0.03% 1.06%

In the current economic cycle, barring an abrupt economic shift, U.S. REITs offer the following advantages:

  • They offer an inflation hedge. REITs are generally anti-inflation, as landlords will react to inflation by raising rents, driving more U.S. consumers to purchase homes
  • The U.S. housing market is returning to historical rates, offering stability and the potential for sustained growth in the market.
  • Because REITs are required by law to return 90% of taxable income to shareholders, many REITs offer strong yields

Of the four major ETFs in the category, the Vanguard REIT Index ETF (VNQ) has offered investors the highest yield over the past 3 and 5-year periods and has shown strong growth in the past year. The ETF in the category with the highest level of growth in the past year has been the iShares Cohen & Steers Realty ETF (ICF), producing returns of over 23%. In conclusion, U.S. Equity REITs offer several advantages in building a portfolio. As always, the view should be taken in an overall asset allocation strategy. This is especially true in today's slightly overvalued and overbought markets.

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.