REIT ETFs are a key component in building a portfolio that produces high income. Among the major high dividend ETFs we are tracking, both U.S. REITs (IYR) and international REIT (RWX) are exceptionally strong, placed at the top one and three spots respectively in the trend score table below. For more detailed performance, refer here.
| Assets Class | Symbols | 01/26 Trend Score | 01/19 Trend Score | Direction |
|---|---|---|---|---|
| iShares Dow Jones US Real Estate | IYR | 10.74% | 9.1% | ^ |
| SPDR S&P 500 | SPY | 10.47% | 9.3% | ^ |
| SPDR DJ Wilshire Intl Real Estate | RWX | 10.32% | 10.19% | ^ |
| Vanguard High Dividend Yield Indx | VYM | 9.41% | 7.95% | ^ |
| Vanguard Dividend Appreciation | VIG | 9.17% | 8.24% | ^ |
| PowerShares Intl Dividend Achievers | PID | 8.91% | 7.33% | ^ |
| iShares Dow Jones Intl Select Div Idx | IDV | 8.61% | 8.0% | ^ |
| iShares MSCI EAFE Index | EFA | 7.58% | 6.71% | ^ |
| First Trust Value Line Dividend Index | FVD | 7.48% | 6.62% | ^ |
| iShares MSCI Emerging Markets Index | EEM | 7.24% | 7.38% | v |
| iShares Dow Jones Select Dividend Index | DVY | 7.23% | 6.36% | ^ |
| SPDR S&P Dividend | SDY | 6.56% | 5.83% | ^ |
| PowerShares HighYield Dividend Achievers | PEY | 6.49% | 6.26% | ^ |
| iShares S&P U.S. Preferred Stock Index | PFF | 3.3% | 3.09% | ^ |
Among U.S. REIT ETFs, there are several choices. The following table lists the four most popular (and largest) broadbased REIT ETFs (as of 1/21/2011).
| 1 Yr AR(%) | 3 Yr AR(%) | 5 YR AR(%) | Expense (%) | Last 3 Month Average Volume (Thousands) | Annual Yield (%) | |
| IYR | 28.2 | 2.7 | -0.1 | 0.47 | 8,446 | 3.53 |
| ICF | 33 | 1.6 | 0.1 | 0.35 | 523 | 2.9 |
| RWR | 31.2 | 3.5 | 0.8 | 0.25 | 219 | 2.9 |
| VNQ | 29.3 | 4.3 | 2.1 | 0.13 | 1,732 | 3.4 |
AR: Annualized Return.
From the table above, the Vanguard REIT Index (VNQ) is clearly the winner: it has the lowest cost and the best 1, 3 5 year annual returns. iShares Dow Jones US Real Estate (IYR) is most liquid but also the most expensive. Not surprisingly, IYR had the least 5 Year annual return. As iShares ETFs are under attack by Vanguard's low cost ETFs, one would expect that iShares needs to respond by slashing their ETFs' fees.
ICF (iShares Cohen & Steers Realty Major) employs an indexing strategy that is consistent with that used in Cohen & Steers' mutual funds: it emphasizes the 'growth' aspect of underlying REIT companies. Before the financial crisis, such a strategy performed well: it out performed Vanguard VNQ in year 2005 and 2006 by meaningful margins (over 3% annually). But the fund dropped more in year 2007 and 2008. As the economy is entering the recovery phase, it regained its strength and notched the best 1 year return.
The takeaway is that even among many seemingly similar REIT ETFs, one should pay close attention to their expenses and strategies employed. The 'growth' and 'value' effect also exists in these REIT ETFs.
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