Checking In: Under the ROOF

One thing is certain in the world of ETFs and that is the first-to-market advantage cannot be taken lightly. Let's say ETF Issuer A brings a sector fund to market and is then copied by ETF Issuer B six months or a year later. All things being equal, sector, holdings, etc., the second ETF had better being doing something extraordinary to pilfer assets from the first. Yes, it's good to be first to market and kudos to the IndeqIQ Real Estate Small-Cap ETF

for accomplishing that feat as the first small-cap REIT play to trade in the U.S. ROOF made its debut in June and at the time, this looked like very sound idea for a new ETF. The problem for the IndeqIQ Real Estate Small-Cap ETF is the same as it has been for nearly every other new ETF in 2011: Timing, as in very bad timing. As an asset class, small-caps are just too risky for fund managers to embrace in this environment. The chart of the Russell 2000 tells us as much. As for REITs, they had been holding up decently for a while, but these are still financial services stocks and they could only go for so long before following traditional bank stocks lower. So small-cap + financial services = Ugly. Still, ROOF has hauled in over $4.4 million in assets under management and in four months of trading in this market environment, that's not too shabby at all. With an expense ratio of 0.69%, ROOF is home to 40 stocks. Mortgage REITs comprise a quarter of the fund's weight while office, retail, hotel, diversified and specialized REITs also get double-digit allocations. No individual stock accounts for more than 6.4% of ROOF's weight. In other words, th Real Estate Small-Cap ETF has a lot going for it except for the terrible market setting in which all new ETFs must try to survive. Yes, ROOF is trading at a new all-time low as week's “Checking In” is being penned. But no, this is not an ETF that is headed to the ETF dumpster. Aside from the unique concept and first-to-market advantage, ROOF has a secret weapon to get investors interested. Actually, it's no secret at all because this factoid has been highlighted time again as the primary reason to look at ROOF. Yield. As in a yield of above 4%. At less than $15 a share, investors can capture solid yield while using a call option approach to a recovery in REITs with ROOF.