Dividend ETFs: Public REITs Offer Good Value While Economy Recovers
03/04/2011 0 comments
Dividend ETFs performed well last week: leading the pack are the emerging market stocks (EEM) and emerging market dividend stocks (DEM), gaining 2.38% and 1.9% respectively. International REITs also did well, gaining 2.04%. For more detailed performance, please refer to here.
Among dividend ETFs, publicly traded REITs (IYR, ICF, VNQ) continue their strong showing: International REITs (RWX) rose most, now placed on the second spot while U.S. REITs ranked the 3rd in our weekly trend table for dividend REITs.
| Assets Class | Symbols | 03/02 Trend Score | 02/23 Trend Score | Direction |
|---|---|---|---|---|
| SPDR S&P 500 | SPY | 10.12% | 10.71% | v |
| SPDR DJ Wilshire Intl Real Estate | RWX | 10.04% | 9.42% | ^ |
| iShares Dow Jones US Real Estate | IYR | 10.0% | 11.56% | v |
| Vanguard High Dividend Yield Indx | VYM | 9.39% | 10.08% | v |
| iShares Dow Jones Intl Select Div Idx | IDV | 9.23% | 9.51% | v |
| PowerShares Intl Dividend Achievers | PID | 9.12% | 8.54% | ^ |
| Vanguard Dividend Appreciation | VIG | 9.09% | 9.73% | v |
| iShares MSCI EAFE Index | EFA | 8.35% | 8.21% | ^ |
| First Trust Value Line Dividend Index | FVD | 7.75% | 7.75% | v |
| WisdomTree Emerging Market Equity Income | DEM | 7.59% | 6.27% | ^ |
| iShares Dow Jones Select Dividend Index | DVY | 7.38% | 7.37% | ^ |
| SPDR S&P Dividend | SDY | 7.14% | 7.22% | v |
| PowerShares HighYield Dividend Achievers | PEY | 6.33% | 6.16% | ^ |
| iShares MSCI Emerging Markets Index | EEM | 5.21% | 3.79% | ^ |
| iShares S&P U.S. Preferred Stock Index | PFF | 3.4% | 3.29% | ^ |
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
The publicly traded REITs have been strong since the beginning of 2010. These commercial property management companied came out of the great recession with several advantages:
- They were able to access to low interest rate capital. According to NAREIT, public REITs raised $47 billion in 2010, almost reached to the record capital raised in 2006 ($49 billion). What is more important is that in 2009, during the market low, they raised $34 billion. Using the low cost capital raised, they were able to take advantage of fire sales by private REITs that were overleveraged.
- Going forward, with economy recovering and the increasing bussiness activities, commercial rentals will increase, enabling REITs to increase their earnings.
The following table compares the performance of two portfolios using a tactical asset allocation strategy: Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate has four candidate funds (SPY, EFA, EEM, AGG), representing four core assets (US. Equity, International Equity, Emerging Market Equity, Fixed Income). Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate adds US REITs (IYR) as a fifth asset candidate.
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate | 11% | 97% | 10% | 85% | 13% | 85% |
| Four Core Asset ETF (EM) Benchmark Tactical Asset Allocation Moderate | 4% | 47% | 6% | 53% | 9% | 53% |
The above clearly illustrates the advantage of REITs in portfolio building. It offers 4% extra annual return. This can be seen further by looking at the holdings of Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate: it has held REITs (VNQ) since 12/2009, getting extra performance boost because of the out performance of REITs over other risk assets in the past one year.
Symbols: RWX,SPY,IYR,VIG,IDV,VYM,EEM,PID,EFA,FVD,DVY,PEY,SDY,PFF,
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
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