REIT ETF

By: EconomyWatch   Date: 3 August 2009

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REIT ETF is an exchange traded fund that invests its majority of assets in equity REIT securities or related derivatives. REIT ETF is managed passively around indices that list publicly traded real estate stocks. Indices vary from one provider to another. However, the popular ones are the MSCI US REIT Index and the Dow Jones US REIT Index. A highlight of REIT ETF is their above average yield.

 

REIT ETF: What Is RIET?
 

REIT stands for Real Estate Investment Trust. REITs pay the minimal or no corporate income taxes. However, they have to distribute almost 90% of their income to the investors. REIT functions similar to mutual funds, their difference being in the context of the underlying assets.

 

Due to the high rate of dividends, REIT ETFs comprise characteristics of both equities as well as fixed income investments. Though the dividends have to be disbursed regularly, their value increases or decreases as per the market.

 

How Do REIT ETF Work?

 

REIT ETFs invest in REIT companies and create a fund. REIT ETFs stocks are then marketed on the indices and traded like stocks.

 

Advantages of REIT ETFs

 

With most of the countries focusing on infrastructural development, REIT ETFs are in huge demand.

 

Their advantages are:

  • REIT ETFs have a higher investment performance and a better yield.

  • REIT ETFs offer unparalleled diversification. As per the modern theories, diversification in different assets is important for minimizing risks.

  • REIT ETFs have high liquidity and thus can be easily traded throughout the day for compounding margins.

  • REIT ETFs offer inflation hedging. With inflation around, investors turn towards real estate and invest in it. As the demand increases, so does the price of the RIET ETF.

 

Disadvantages of REIT ETFs
 

Here are some of the disadvantages of REIT ETF:

  • REIT ETFs can cause huge losses if the entire focus of the ETF is limited to one segment of the real estate business.

  • REIT ETFs can cause losses even when the investments are made in an area that already has a lot of real estate activity.

 

REIT ETFs have a diversified portfolio ranging from commercial mortgages to construction. Therefore, an investor must go through the details before selecting the REIT ETF.

 

 


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