Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect real estate investments to thrive as the global economy recovers, the SPDR Dow Jones REIT ETF (NYSE: RWR) 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 dozens of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Dow Jones REIT ETF's expense ratio -- its annual fee -- is a low 0.25%.
This ETF has performed rather well, outperforming the S&P 500 handily over the past three and 10 years (but missing that mark a bit over the past five). 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 10%, 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. Health Care REIT (NYSE: HCN), for example, gained 26% over the past year and has a rosy future as it owns many senior living properties in a world where the elderly population is growing solidly. General Growth Properties (NYSE: GGP), out of bankruptcy recently and up 52% over the past year, is a major mall owner in the U.S. and stands to benefit as our economy rebounds and people start shopping more.
Other companies didn't add quite as much to the ETF's returns last year, but could have an effect in the years to come. HCP (NYSE: HCP) was up 15%, and also has a big and promising stake in senior living properties and other health-care-related properties. Digital Realty Trust (NYSE: DLR), up only 4%, invests in tech data centers, but it also has a lot of debt -- even for the high-leverage REIT industry.
The big picture
Demand for real estate isn't going away anytime soon. 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 ."
