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In the first part of this series, iShares REM ran away as a clear winner with an impressive 11.28% yield and solid risk-adjusted performance over the last 12 months. Five more REIT ETFs are now compared to filter out the contenders and pretenders of the REIT ETF world. Another mortgage mREIT will show that high yield produces significant advantages in reducing overall risk, defined as volatility, when compared to lesser yielding REITs.

This second installment pits the following REIT ETFs against one another, each scored on yield and risk adjusted performance:

MORT - Market Vectors Mortgage REIT ETF

FNIO - iShares FTSE NAREIT Industrial/Office Capped Index

FRI - First Trust S&P REIT Index

KBWY - PowerShares KBW Premium Yield Equity REIT

SCHH - Schwab US REIT ETF

The following table shows the correlation between each fund over the last 12 months. A high correlation indicates two funds move up and down consistently together. The table shows that all of the REIT ETFs are highly correlated with each other, which is expected.

FNIO

FRI

KBWY

SCHH

MORT

FNIO

1.0000

0.9607

0.9676

0.9564

0.8814

FRI

1.0000

0.9239

0.9996

0.8491

KBWY

1.0000

0.9182

0.9085

SCHH

1.0000

0.8442

MORT

1.0000

Many investors are looking for high yield when it comes to REITs. The following table shows the current yield based on the last 12 months of distributions for each ETF included in this article.

Rank

YIELD

FNIO

3

2.99%

FRI

5

1.79%

KBWY

2

5.02%

SCHH

4

2.08%

MORT

1

9.68%

Market Vectors MORT beats out the competition when it comes to yield with a rock solid 9.68% yield. High yields coupled with dividend reinvestment can lead to very rewarding cash flows and yield on initial investment down the road.

Market Vectors MORT also finishes on the top spot when it comes to risk-adjusted performance. The table below gives Sharpe ratios for each of the five ETFs based on the last 12 months' average returns. A risk-free rate of 0.10% was used in the calculation and is the current 3-month US Treasury rate. MORT not only produced the highest returns over the last 12 months from the group. It also experienced the least amount of volatility, which is considered using the risk component of the Sharpe ratio.

RANK

MEAN RETURN

VOLATILITY

SHARPE RATIO

MORT

1

22.67%

12.91%

1.7485

KBWY

2

21.53%

21.53%

0.9953

FNIO

4

16.13%

23.30%

0.6881

SCHH

5

20.46%

22.76%

0.8949

FRI

3

20.37%

22.45%

0.9029

Among the ETFs reviewed in this article, MORT stands out. It puts the competition to rest when it comes to yield and also reigns supreme in risk-adjusted performance. As was the case in part I of this series, yield is again king.

Source: Battle Of The REIT ETFs: Part II