Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect real estate companies to prosper over time, especially as the world's economies recover more, the iShares NAREIT Real Estate 50 ETF (NYSE: FTY ) 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. It offers a dividend yield recently near 3.5%, as well.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.48%. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed rather well, trouncing the world market over the past three and five 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 19%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several real-estate companies had strong performances over the past year. Realty Income (NYSE: O ) , for example, gained 33%, and yields 4.3%. It's a retail real estate investment trust, or REIT, leasing property to retailers and aiming to lock in long-term income through long leases. The company has been investing in growing its property portfolio, and its occupancy rate has been rising, as well. It's also a dividend star, having upped its payout for 59 consecutive quarters.
Paying much higher dividends but with more risk to them are mortgage REITs Annaly Capital (NYSE: NLY ) and American Capital Agency (Nasdaq: AGNC ) , yielding 13.1% and 14.7%, respectively. (Yes, you read that right.) Up 9% and 41%, respectively, over the past year, they've prospered in this low-interest-rate environment. That won't last forever, and there has already been some paring of dividends, but both still sport massive yields. Both of these companies are regarded as somewhat more stable and less risky than various peers. They employ more leverage than, say, Chimera Investment, but they invest in more solid mortgages, as well, such as ones guaranteed by Fannie Mae and Freddie Mac.
Timber and forest products giant Weyerhaeuser (NYSE: WY ) isn't generally thought of as a real estate company, but it has converted itself into a REIT and thus pays out most of its earnings as dividends. It recently yielded 2.5% and though it doesn't have many marks of a perfect stock at the moment, that's likely to change as the cyclical demand for lumber heats up again and the housing market recovers. Management has already hinted at signs of a turnaround being under way.
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.
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