Revealing a Real Estate Yield Play

Bloomberg has called it “America’s worst bond-market collapse in at least half a century.”

It was not too long ago that the Treasury yield curve inversion reached levels not seen since 2007, largely due to many investors continuing to believe that the Fed’s decision to quickly raise interest rates would throw the economy into recession.

While that scenario has not yet come to pass, underscored by last week’s unexpectedly good jobs report and today’s inflation data, the question of what bond yields will do and whether inflation will peak or continue rising (necessitating more rate hikes) remain unanswered.

Of course, there are ETFs that will do well if bond yields begin to come back down due to a slowing economy. One such exchange-traded fund (ETF) is the Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ).

This ETF tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, which measures the performance of real estate investment trusts (REITs) and other investments related to real estate centered around American real estate. The focal difference between the portfolio and the index is that the fund’s managers seem to favor commercial REITs instead of specialized REITs. As is true with regard to many REIT ETFs, distributions from the fund are taxed as ordinary income.

The top holdings in the portfolio are Vanguard Real Estate II Index Fund Institutional Shares (MUTF: VRTPX), American Tower Corporation (NYSE: AMT), Prologis Inc. (NYSE: PLD), Crown Castle Inc. (NYSE: CCI), Equinix, Inc. (NASDAQ: EQIX), Public Storage (NYSE: PSA), Reality Income Corporation (NYSE: O) and Welltower Inc. (NYSE: WELL).

As of Aug. 9, VNQ has risen 7.23% in the past month and 4.04% for the past three months. It is currently down 13.88% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $40.13 billion in assets under management and has an expense ratio of 0.12%.

In short, while VNQ does provide investors with access to REITs, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.