Exchange-traded funds, or ETFs, offer a convenient way to invest in sectors or niches that interest you. If you expect the real estate industry to thrive over time because they're not making more land, the iShares Dow Jones US Real Estate ETF (NYSE: IYR ) 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 lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has performed rather well; on average, it beat the S&P 500 handily over the past 10 years. As with most investments, of course, 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 17%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. American Capital Agency (Nasdaq: AGNC ) advanced about 17%, and recently sported a dividend yield near 20% -- but some worry that it is overvalued and that it has taken on too much debt. Timber specialists Rayonier (NYSE: RYN ) and Weyerhaeuser (NYSE: WY ) rose about 26% and 16%, respectively, and offer robust profit margins, along with rising revenue and dividend yields of 3.5% or more.
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Annaly Capital (NYSE: NLY ) gained only 11%, but its near-term future looks bright, as it profits by investing in properties with borrowed money, and interest rates look poised to remain low for at least a few more years. Also advancing just 11%, Health Care REIT (NYSE: HCN ) is attracting investors due to its focus on properties such as residential care facilities and doctors' offices, which should see much demand as our population ages.
The big picture
Demand for real estate isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.