Real Estate (REIT) ETFs

Why Investors Buy REIT ETFs

• High returns: Over time, REITs’ average annual returns have exceeded those of the S&P 500—from 1974–2004, REITs returned 11.7% on average each year while the S&P 500 returned 10.7%, according to a study by Neuberger Berman LLC, a top investment advisory firm.
• Low correlation: In investing, the correlation between two types of investments refers to how closely those investments trade in tandem. For instance, the stocks of homebuilders and timber companies have a close correlation: as demand for new homes rises or falls, the demand for timber—and the price of timber stocks—tends to follow. REITs have historically shown a low correlation with the overall market—REITs tend to trade in tandem with stocks less than half of the time. This makes REITs a great way to reduce the risk of owning ETFs (or other investments) that typically mirror the performance of the S&P 500.
• High dividends: REITs tend to have a substantially higher dividend yield than that of the overall market.
• Convenient access to “owning” real estate: Buying a REIT ETF gives you exposure to the overall real estate market without having to buy any actual property. That said, REIT share prices don’t always correlate to the performance of the overall real estate market. For instance, as housing prices fell in 2006, REITs boomed, due in part to the rise in rents that resulted from the weak housing market.

Popular REIT ETFs