Make Money in Growing Real Estate Stocks -- the Easy Way
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the real estate industry to thrive over time and want to invest in some real estate investment trusts (REITs), the Vanguard REIT Index (NYS: VNQ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is an ultra-low 0.12%. (Vanguard is known for low fees.)
This ETF has a mixed performance record, beating the S&P 500, on average, over the past three years, but underperforming it over the past five. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of real-estate companies had strong performances over the past year. Digital Realty Trust (NYS: DLR) , for example, advanced 36% over the past year, as investors excited about the growth in cloud computing grabbed shares of the company that focuses on data-center properties. Like many REITs, it offers a tasty dividend, as well -- recently yielding 4%. (REITs are required to pay out most of their earnings as dividends.)
Gaining 15% and yielding 2.4% is General Growth Properties (NYS: GGP) . The mall-focused RETI has emerged from bankruptcy protection with restructured debt and may be among the small subset of bankruptcy-declarers that eventually makes investors wealthier. The company has been buying some stores from Sears Holdings recently and is poised to see its numbers improve as our economy recovers and the retail sector heats up.
Health Care REIT (NYS: HCN) , yielding 5.4% and up 12%, is attracting investors with its focus on properties such as residential care facilities and doctors' offices, which should see much demand as our population ages. It invested some $6 billion in properties and acquisitions last year. (Health Care REIT has been named one of the 10 highest-rated REITs.)
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Vornado Realty Trust (NYS: VNO) , yielding 3.3%, gained just 1% over the past year. It focuses on office, retail, and industrial properties, many of which are in or around New York City and Washington, D.C. The company also owns about a third of Toys "R" Us, which hasn't been delivering blockbuster results lately. Rated with one star (out of five) in our CAPS community, it looks like most investors see greener pastures elsewhere.
The big picture
Demand for real estate isn't likely to ever shrivel up. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time this article was published LongtimeFool contributorSelena Maranjian,whom you canfollow on Twitter, holds no position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Health Care REIT. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.