Exchange-traded funds 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...well, as they say, no one is making any more land, the iShares FTSE NAREIT Residential Plus ETF (NYSE: REZ ) 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 0.48%. It recently yielded about 3%, too.
This ETF has beaten the 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.
What's in it?
The ETF has about half of its assets in REITs focused on apartments and 33% in health-care-related REITs.
Several real-estate companies had strong performances over the past year. Omega Healthcare (NYSE: OHI ) , for example, gained 12% and was recently sporting an 8.1% dividend yield. It owns a lot of skilled-nursing facilities, which tend to carry lower costs than many other health-care facilities. Like other health-care-oriented companies, it stands to benefit as our population ages.
Home Properties (NYSE: HME ) , focusing on apartment communities, gained 5% and has been reporting accelerating revenue and earnings growth. It recently yielded 4.4%, and in its core properties, rental income and occupancy rates have been rising. Its detractors worry about its debt load, but it does seem manageable for now, with 81% of debt at fixed rates that average 4.7%.
Other companies didn't do as well last year, but they could see their fortunes change in years to come. Medical Properties Trust (NYSE: MPW ) shed 19% and recently yielded about 9%. The company is carrying significant debt and aims to continue growing via acquisitions: In March it announced a $400 million deal for 16 properties, financed by shares and debt.
Senior Housing Properties Trust (NYSE: SNH ) shrank by 10% and recently yielded 7%. It also carries a lot of debt and little cash, but its revenue and earnings have been growing robustly. In a recent presentation, management pointed out that the company differs from many peers by having about 94% of its income coming from private-pay properties -- not from ones that are more vulnerable to changing Medicare and Medicaid regulations. Some have expressed concern, though, that its major tenant, Five Star Quality Care, is responsible for close to half of rents, which can be risky.
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 it -- and profiting from it -- that much easier.
Medicare and Medicaid are not the only programs that might be changed in coming years. Check out our special free report, "These Stocks Could Skyrocket After the 2012 Presidential Election," to learn about some companies whose fortunes may change for the better -- in a big way.