Real Estate ETFs to Consider in 2010

The year 2009 brought a stellar rebound to US equity markets, with all the major sectors gaining ground.  The most impressive returns happened in areas hardest hit during the late-2008 meltdown: Materials and Consumer Discretionary. However, the biggest sector winner by far was Technology with (as of December 24) a nearly 50% bounce from the end of 2008.

Another sector that jumped, especially since March, was Real Estate.  Many investors still view real estate cautiously.  Just a year ago real estate-related derivatives nearly collapsed financial markets around the world.  Disaster was delayed only with massive purchases of mortgage-backed securities by governments and central banks.

Real estate values vary greatly by region.  While Detroit will probably not recover for many years, Texas real estate has been relatively steady even during the recession.  According to the US Census, Texas is still the fastest growing state in the country.  However, the strongest region is the Midwest, where the National Association of Realtors reported a seasonally-adjusted 53.5% year-to-date increase in existing home sales.  In addition, the Midwest reported the lowest decline in sales price compared to the other major regions this year.  Existing home sales in November across the country were up 44.1% since the same month last year.  Granted, NAR numbers are industry-biased, but they do report a trend that is hard to deny.

Both commercial and residential real estate have been emerging from a slump this year.  If the recovery continues, we expect real estate to do well in 2010.  We have highlighted three ETFs to consider if that happens.  Bear in mind, these ETFs are heavily weighted in commercial real estate.  If you’re looking to go long in the residential real estate market, you might want to call a Realtor.

Vanguard REIT ETF (VNQ): This is Vanguard’s offering in the REIT space. VNQ has $4.1 billion in assets and trades about 3 million shares per day.  VNQ is up 33.5% year to date as of 12/24.  VNQ has an expense ratio of 0.11% and yields 5.48%.

iShares Cohen & Steers Realty Majors (ICF): This iShares offering tracks the Cohen & Steers Realty Majors index.  ICF has $1.7 billion in assets and trades 1.3 million shares every day.  ICF is up 29.5% year to date as of 12/24 and has an expense ratio of 0.35%.  It yields 4.01%

SPDR Dow Jones REIT (RWR): This is State Street’s offering that matches the Dow Jones REIT index.  RWR has $968 million in assets and trades 700,000 shares per day.  RWR is up 32.2% year to date as of 12/24.  RWR has an expense ratio of 0.25% and yields 3.68%.

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.