The diversification investors can achieve with a few well-chosen exchange-traded funds (ETFs) makes them great tools to build wealth in the stock market. It's even better when there are specific catalysts in the near term that could benefit an ETF's holdings.
Here are two ETFs that can help an investor profit from a rebound in real estate activity and China's economy.
1. Vanguard Real Estate ETF
Rising interest rates and inflation have been major headwinds for the real estate market over the last few years. The Vanguard Real Estate ETF (VNQ 1.75%) holds over 150 positions, many of which are real estate investment trusts (REITs) that are required to distribute at least 90% of their taxable income to shareholders as dividends.
Even with interest rates elevated, the ETF has climbed 10% over the last three months. This comes after the Consumer Price Index for June increased at the lowest rate in over three years. If that trend continues, the Federal Reserve may reverse its rate hikes, which would send interest rates lower and send this ETF even higher.
NYSEMKT: VNQ
Key Data Points
The Vanguard Real Estate ETF pays a high trailing dividend yield of 3.93%, which is above its 3.08% historical average. These dividends are coming from a diverse range of real estate markets represented in the fund, including data center sites, telecom towers, timber, office buildings, hotels, retail locations, and self-storage.
Over the last 20 years, a $10,000 investment in the fund would have grown to $43,000 with dividends reinvested. That works out to an annualized return of 7.7%.
Here are the top 10 holdings in the fund as of June 30, 2024, and their percentage weighting:
- Vanguard Real Estate II Index Fund Institutional Plus Shares (13.41%)
- Prologis (6.73%)
- American Tower (5.88%)
- Equinix (4.53%)
- Welltower (3.76%)
- Simon Property Group (3.20%)
- Digital Realty Trust (3.08%)
- Realty Income (2.95%)
- Public Storage (2.95%)
- Crown Castle International (2.75%)
As with other Vanguard ETFs, this ETF has a very low expense ratio of 0.13%, meaning it will only cost an investor $1.30 per year for every $1,000 invested. It's always possible that interest rates could stay elevated, but in that scenario, investors can still use this ETF to boost their passive income and cash in on the $132 trillion U.S. real estate market.
2. KraneShares CSI China Internet ETF
China's economy has been through the wringer over the last few years. Sluggish consumer spending trends and increasing competition among the leading retail companies has sent shares of China's top e-commerce stocks to bargain-basement valuations.
The KraneShares CSI China Internet ETF (KWEB +0.70%) provides exposure to the leading companies in China's $2.1 trillion online retail market. Most of the fund's top holdings trade at conservative price-to-earnings ratios close to 10, That's cheap, considering that the Wall Street consensus projects their long-term earnings growth to be anywhere from 6% to 36% on an annualized basis.
After collapsing in 2022, this ETF has traded roughly flat over the last year and could be setting up for a rebound.
NYSEMKT: KWEB
Key Data Points
Here are the top 10 holdings in the fund as of Aug. 1, 2024, and their percentage weighting:
- Tencent Holdings (10.64%)
- Alibaba Group (10.29%)
- PDD Holdings (7.96%)
- Meituan (7.45%)
- JD.com (5.68%)
- NetEase (4.43%)
- Tencent Music (4.07%)
- Baidu (4.02%)
- KE Holdings (3.81%)
- Kuaishou Technology (3.79%)
China's economy can be volatile due to the uncertainty of the regulatory environment, but that's why now is a great time to invest in China. The discounted valuations relative to future growth prospects are more than compensating investors for the risks.
Moreover, China's economy is showing signs of turning the corner. For example, Alibaba reported 8% year-over-year growth in the March-ending quarter, driven by a 4% increase in revenue in its Taobao and Tmall commerce group. This was an improvement over the 2% year-over-year growth in the previous quarter. JD.com also reported growth in users and shopping frequency, with revenue up 7% year over year.
The fund has an expense ratio of 0.70%, which comes out to $7 in annual costs for every $1,000 invested. Overall, China's tech sector offers incredible value right now that could lead to handsome returns.
