Parsing Through ETFs For REITs' Extended Rally

They were once supposed to be the "next shoe to drop" in the financial services sector during the global financial meltdown and while there were some bankruptcies and dividend cuts, REITs survived (for the most part) and enjoyed solid returns as a group in 2010. This much is clear: Investors still crave yield and dividends will again be a major investment theme in 2011, so the REIT party may have some life left in it. An article in the most recent issue of Barron's interviews two Neuberger Berman fund managers with a bullish outlook on REITs. Brian Jones and Steve Shigekawa say rising dividends in the group could prompt more retail investors to get involved with REITs and spur foreign investors and pension funds to pour more capital into the space. The pair also points to maturing debt this year and next as positive for cash flow, Barron's reports. With that, let's take a look at some REIT ETFs that worth remembering in 2011. 1) Vanguard REIT Index ETF VNQ: VNQ is heavy on names such as Simon Property SPG, Vornado VNO Boston Properties BSX and Equity Residential EQR so it is diversified and gives investors a play on commercial REITs, the sub-sector favored by Jones and Shigekawa. 2) iShares Cohen & Steers Realty Majors ICF: ICF holds many of the same stocks as VNQ, just with different allocations so investors don't need to hold both ETFs at the same time. ICF is a solid fund, but VNQ has the better volume and lower expense ratio. 3) SPDR Dow Jones International Real Estate ETF RWX: With an eye toward global markets, investors may want to take a look at RWX, which would also be a play on a rebounding Japanese economy as Japan is the largest country weight at 19%. Australia, Hong Kong and the U.K. also get double-digit weights here. 4) WisdomTree International Real Estate DRW: Keeping with the global theme, we have DRW, which is also heavy on Hong Kong, Australia and Japan. In fact, that's the order of the top three country weights with Hong Kong checking in at over 26%. DRW offers slightly less Japan exposure than RWX. An investor looking to cover all of his REIT bases might want to consider owning one of VNQ and ICF and applying the same approach to RWX and DRW.