Stock Market: REIT ETFs Show Mixed Returns
Gordon Pape takes a look at a how his recommended REIT ETFs have performed as the S&P/TSX Capped REIT Index continues to rally. Photo: Teera Konakan / Getty Images
The onset of the pandemic early in 2020 panicked REIT investors. Worries that renters wouldn’t be able to pay their bills prompted a massive selloff in real estate investment trusts, not just in Canada but around the world.
Between Feb. 21 and March 20, 2020, the S&P/TSX Capped REIT Index fell 79.5 points, to 131.51 from 211.01. That was a loss of almost 38 per cent in the space of four weeks.
The index bumped along that bottom until October 2020, when it began the rally that continues to this day. But despite the robust recovery, it has still not quite regained its pre-pandemic highs.
Some investors like to choose their REITs individually. Others prefer to buy a portfolio of REITs in the form of specialized ETFs. We have three of these on the recommended list of my Income Investor newsletter, and their results are by no means uniform. Here’s a rundown. Prices are as of Dec. 7.
iShares Global REIT ETF (NYSE: REET)
Current price: $29.71 (figures in U.S. dollars)
Originally recommended: Jan. 30/20 at $28.01
Annual payout: $0.825 (trailing 12 months)
Yield: 2.8 per cent
Risk: Higher risk
Comments: REITs came back strongly this year after taking a hammering in 2020. This ETF reflects that recovery.
We have seen a significant jump in the price of these units, which are now above our original recommended purchase level. Year-to-date, this ETF has gained 25.7 per cent.
Unfortunately, we have also seen a drop-off in the quarterly distribution, which means the yield has fallen back to 2.8 per cent.
Although this is a global REIT, just over 70 per cent of the assets are in the U.S. Japan is next at 7.3 per cent, while 5 per cent of the fund is invested in the U.K. The rest is scattered around.
The top four sectors make up almost 68 per cent of the total assets. They are industrial (17.45 per cent), retail (17.43 per cent), specialized (16.68 per cent), and residential (16.07 per cent).
Top holdings are Prologis REIT, which specializes in logistic facilities (6.44 per cent of assets), Equinix REIT, which focuses on digital logistics (4.14 per cent), and Simon Property Group, which has a retail focus (3.17 per cent).
The MER is only 0.14 per cent.
We’ve seen a good recovery here, so it would be unrealistic to expect the next 12 months to be as strong. But real estate is a good choice if you want some inflation protection for your portfolio.
Global X SuperDividend REIT ETF (NDQ: SRET)
Current price: $9.43 (all figures in U.S. dollars)
Originally recommended: Aug. 29/19 at $14.46
Annual payout: $0.613 (trailing12 months)
Yield: 6.5 per cent
Risk: Higher risk
Comments: This is another global REIT, with a mandate to invest in the 30 highest-yielding REITs from around the world. Two of the top five holdings are Canadian: SmartCentres REIT and H&R REIT.
The market price is little changed from my last review in March. The positive side of that is that the yield remains at a high 6.5 per cent, which means your cash flow is much better than with REET.
Here again, the emphasis is on the U.S., with 70.6 per cent of the fund’s assets. Canada is next with 11.5 per cent, followed by Australia (9.5 per cent), Singapore (5.9 per cent), and Mexico (2.6 per cent).
The fund is quite evenly balanced, with Chimera Investment Corp. the top holding at 4.51 per cent. It’s a U.S company that, unlike most other REITs, does not own brick-and-mortar assets. Rather, it invests in a portfolio of mortgage-backed securities. It has a forward yield of 8 per cent at the current price.
This ETF takes a somewhat different approach from REET and would be the better choice right now if cash flow is the primary objective. But, based on recent history, don’t expect much in the way of capital appreciation.
The MER is 0.58 per cent.
iShares S&P/TSX Capped REIT Index ETF (TSX: XRE)
Current price: $20.21
Originally recommended: Jan. 17/19 at $17.47
Annual payout: $0.545 (trailing 12 months)
Yield: 2.7 per cent
Risk Rating: Higher risk
Comments: Unlike the first two ETFs we looked at, this one invests exclusively in Canadian REITs. It holds only 10 positions, with the top three (Canadian Apartment Properties, RioCan, and Granite) accounting for one-third of the total assets.
The short-term results are solid. Over the year to the end of November, the fund gained 22.6 per cent. Year-to-date, the fund is ahead 29 per cent.
The long-term returns are nowhere near as dramatic (nor would anyone expect them to be), but they are impressive nonetheless. Since inception in October 2002, this ETF has posted an average annual return of 9.8 per cent. Its worst calendar year was 2020, when it fell 13.6 per cent.
Distributions are paid monthly, but they are not consistent. They were cut twice last year, from $0.052 a month in December 2019 to $0.037 in April, May, and June. Payments are currently running at $0.051 per unit.
The management expense ratio is on the high side at 0.61 per cent, but investors are getting their money’s worth in terms of performance.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe