Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some real-estate investments to your portfolio, the PowerShares Active U.S. Real Estate ETF (PSR 1.83%) 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.80%. That's a good bit higher than many ETFs, but also lower than the typical stock mutual fund. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, handily beating 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.
Why real estate?
Perhaps because there's a finite amount of it, real estate tends to hold its value over time, though there can be hiccups along the way. Real estate investment trusts (REITs), meanwhile, offer an extra benefit, via their requirement to pay out at least 90% of their income in the form of dividends.
More than a handful of REITs had strong performances over the past year. Timber REIT Weyerhaeuser (WY 1.65%) surged 77%, for example, involved in a range of operations from real estate to homebuilding to timberlands to packaging, and more. It posted mixed quarterly results last month but is positioned well to benefit from a recovering housing market. It has lower debt than many peers, but some view it as overvalued. It yields about 2.5% these days and will probably benefit at least a little from Hurricane Sandy, because of the need for many home repairs and replacements.
Up 27% over the past year, Plum Creek Timber (PCL +0.00%), like Weyerhauser, is a forest-related REIT. It's the largest private landowner in the nation, boasting about 6.6 million acres of timberlands, and it also manufactures products such as plywood and fiberboard. It, too, stands to profit off a recovering housing market. Its stock recently yielded 4%, but as it earns more, it could pay out much more. Its EBITDA per acre, though, isn't as high as those of some peers.
American Tower (AMT 2.49%) soared 37%. The company, recently converted to REIT status, rents tower space to wireless carriers worldwide. Bulls like its recurring revenue from long-term contracts and its potential for growth given rising demand for high-speed data. Data usage over the past year reportedly doubled, boding well for the company. It's expanding globally, too, recently spending $500 million on two towers in Germany. Bears worry that the stock is less of a bargain now, after rising so much. American Tower stock recently yielded just 1.2% in dividends.
Health Care REIT (HCN 3.53%) gained 33% and recently yielded a solid 4.9%. Management has explained in a conference call, "Our business model continues to hit on all cylinders." Earlier this year, the company acquired Sunrise Senior Living (NYSE: SRZ), boosting its elder-care facility portfolio. Meanwhile, same-store margins and occupancy rates have been growing, and revenue has been growing at an accelerating rate.
The big picture
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.
