April 28, 2011
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the real estate sector to improve as the global economy rebounds, the Vanguard REIT Index (NYSE: VNQ ) ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in several dozen of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard REIT ETF's expense ratio -- its annual fee -- is an ultra-low 0.13%.
This ETF has outperformed the S&P 500 over the past one, three, and five years. Of course, as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. With a low turnover rate of 12%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do. It also sports an attractive 3.3% yield.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. General Growth Properties (NYSE: GGP ) gained 29% over the past year and has been turning itself around. It's a major mall owner, with 37 malls in the biggest U.S. metropolitan areas. Health Care REIT (NYSE: HCN ) , also up 29%, is a more defensive nook of the real estate market. While recessions may have people shopping at malls less often, those same customers won't cut back on health care so quickly. Macerich (NYSE: MAC ) was one of the sector's most hated stocks last year, but it has still gained 24% in the past 12 months. (It still has doubters, since its dividend payout ratio tops 100%.)
Other companies didn't add as much to the ETF's returns in the past year, but could have an effect in the years to come. Realty Income (NYSE: O ) gained 13%, but it entices investors with a 4.9% dividend and has paid a monthly dividend for more than 40 years. Its portfolio features more than 2,500 properties carrying long-term leases.
The big picture
Demand for health care will likely always be with us. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.
ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery."