The US real estate market has given a big boost to portfolio returns over the past month. Let’s study 2 of the best ETFs on the market.
2022 marked a turning point for American real estate. After the surge in sales recorded in the previous year, which had reached the highest since 2006, there was a decline in the number of real estate transactions.
This market cooling trend continued into the first five months of 2023, with the annual number of single-family and condominium or cooperative transactions standing at 4.3 million. Despite numerous challenges, the real estate market has shown signs of resilience.
Home prices, after recording a decline in the first months of 2023, have started to rise again, albeit at a slower pace. The persistent lack of new construction has kept the market under-supplied, avoiding a drastic decline in house prices.
In this scenario, real estate ETFs surprised investors with exceptional performances in November. The analysis below will explore how these funds have capitalized on current market dynamics, offering unique opportunities to investors in a time of uncertainty and change.
1. iShares US Property Yield UCITS ETF
The iShares US Property Yield UCITS ETF presents itself as an intriguing option for investors interested in the US real estate sector. This ETF, which tracks the FTSE EPRA/NAREIT United States Dividend+ Index, offers targeted exposure to Real Estate Investment Trusts (REITs) and US-listed real estate companies with a one-year forecast dividend yield equal to or greater at 2%. With assets under management of approximately €402 million and a launch dating back to November 3, 2006, the ETF has demonstrated a solid trajectory over time.
One of the ETF’s salient features is its full physical replication strategy, which involves purchasing all components of the underlying index. This approach ensures faithful adherence to the benchmark index, reducing the risk of tracking errors. Furthermore, with a total expense ratio (TER) of 0.40% per annum, the ETF is positioned as a fairly cost-efficient choice for investors looking to access this market segment.
From a returns perspective, the ETF has shown variable performance over the years. In 2021, it recorded an impressive gain of 52.67%, while 2022 saw a decline of 19.84%. This volatility reflects the dynamics of the real estate market and the sensitivity of the sector to general economic conditions. However, the long-term performance remains positive, with a gain of 106.74% since launch.
The ETF’s current dividend yield is 3.59%, with dividends paid quarterly. This makes it attractive to investors looking for regular income streams. However, it is important to note that the dividend yield has varied over the years, reflecting changing market conditions and the distribution policies of the companies included in the index.
From a risk perspective, the ETF exhibits high volatility, with a value of 21.02% every year. This highlights the inherently risky nature of real estate investing, which can be influenced by factors such as interest rates, economic conditions, and industry developments. The risk return varies over time, indicating that investors should be aware of potential fluctuations in the ETF’s value.
2. Invesco US Real Estate Sector UCITS ETF
The Invesco US Real Estate Sector UCITS ETF offers investors a unique opportunity to access the US real estate sector through a well-defined investment strategy. This ETF tracks the S&P Select Sector Capped 20% Real Estate index, which in turn reflects the US real estate sector, with a maximum cap of 20% on the weight of individual stocks.
One of the distinguishing features of this ETF is its synthetic replication strategy, which uses a swap to replicate the performance of the underlying index. This approach may involve a certain degree of counterparty risk. Additionally, the ETF stands out with its low total expense ratio (TER) of 0.14% per year, making it an economical choice for investors seeking exposure to this sector.
Launched on February 17, 2016, the ETF has assets under management of approximately €58 million, classifying it as a small/medium-sized ETF. Despite its relatively small size, it has shown remarkable performance over time. Since launch, the ETF has seen an increase of 65.56%, with strong growth years such as 2021 (+57.56%) and declining years such as 2022 (-22.05%). This volatility reflects fluctuations in the real estate market and the impact of external economic factors.
An important aspect to consider is the ETF’s dividend distribution policy. Unlike many other real estate ETFs, dividends are accumulated and reinvested, rather than distributed to investors. This may be beneficial for those seeking long-term capital growth, but may not be ideal for those seeking regular income.
From a risk perspective, the ETF shows high volatility, with a value of 21.13% on an annual basis. This level of volatility is consistent with the real estate industry in general, which can be sensitive to changes in interest rates, regulatory changes, and economic trends. Return on risk varies over time, suggesting that investors should be prepared for potential periods of low performance.
In conclusion, the Invesco US Real Estate Sector UCITS ETF represents an attractive choice for investors seeking specific exposure to the US real estate sector and offers potential advantages in terms of capital growth and low costs, investors should be aware of its volatility and dividend accumulation strategy. As always, it is essential to consider this ETF in the context of a diversified investment strategy aligned with your individual goals and risk tolerance.
Ultimately, the US real estate market continues to offer fertile ground for investors, with ETFs representing versatile tools for capitalizing on emerging opportunities. However, investors must remain informed and aware of the associated risks, integrating these instruments into a diversified portfolio aligned with their financial goals and risk tolerance.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings. |
Original article published on Money.it Italy 2023-12-04 15:58:00. Original title: Real Estate americano, rendimenti da record per gli ETF a 1 mese
