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The onset of the pandemic early in 2020 panicked REIT investors. Worries that renters wouldn’t be able to pay their bills prompted a massive selloff in real estate investment trusts, not just in Canada but around the world.
Between Feb. 21 and March 20, 2020, the S&P/TSX Capped REIT Index fell 79.5 points, to 131.51 from 211.01. That was a loss of almost 38% in the space of four weeks.
The index bumped along that bottom until October 2020, when it began the rally that continues to this day. But despite the robust recovery, it has still not quite regained its pre-pandemic high.
Some investors like to choose their REITs individually. Others prefer to buy a portfolio of REITs in the form of specialized ETFs. We have three of these on the recommended list in my Income Investor newsletter, and their results are by no means uniform. Here’s a rundown.
REITs have come back strongly after taking a hammering in 2020. iShares Global REIT ETF (NYSE: REET) reflects that recovery, climbing to a new high at the end of December, but selling off again through January.
We have seen a significant jump in the price of these units since January 2020, when it was originally recommended in The Income Investor. Unfortunately, we have also seen a dropoff in the quarterly distribution. The yield is now 3.4% at recent prices.
Although this is a global REIT, just over 70% of the assets are in the U.S. Japan is next at 7.3%, while 5% of the fund is invested in the U.K. The rest is scattered around.
The top four sectors make up almost 68% of the total assets. They are industrial (17.45%), retail (17.43%), specialized (16.68%), and residential (16.07%).
Top holdings are Prologis REIT, which specializes in logistic facilities (6.44% of assets), Equinix REIT, which focuses on digital logistics (4.14%), and Simon Property Group, which has a retail focus (3.17%).
The MER is only 0.14%.
We’ve seen a good recovery here, so it would be unrealistic to expect the next 12 months to be as strong. But real estate is a good choice if you want some inflation protection for your portfolio.
Global X SuperDividend REIT ETF (NSD: SRET) is another global REIT, with a mandate to invest in the 30 highest-yielding REITs from around the world. Two of the top five holdings are Canadian: SmartCentres REIT and H&R REIT.
The market price is little changed from my review last March in Income Investor. The positive side of that is that the yield remains at a high 6.7%, which means your cash flow is much better than with REET.
Here again, the emphasis is on the U.S., with 70.6% of the fund’s assets. Canada is next with 11.5%, followed by Australia (9.5%), Singapore (5.9%), and Mexico (2.6%).
The fund is quite evenly balanced, with Chimera Investment Corp. the top holding at 4.51%. It’s a US company that, unlike most other REITs, does not own brick-and-mortar assets. Rather, it invests in a portfolio of mortgage-backed securities. It has a forward yield of 8% at the current price.
This ETF takes a somewhat different approach from REET and would be the better choice right now if cash flow is the primary objective. But, based on recent history, don’t expect much in the way of capital appreciation.
The MER is 0.58%.
Unlike the first two ETFs we looked at, iShares S&P/TSX Capped REIT Index ETF (TSX: XRE) invests exclusively in Canadian REITs. It holds only 10 positions, with the top three (Canadian Apartment Properties, RioCan, and Granite) accounting for one third of the total assets.
The short-term results are solid, even with this month’s market selloff. Over the year to Jan. 28, the fund gained 22.3%. The long-term returns are nowhere near as dramatic (nor would anyone expect them to be), but they are impressive nonetheless. Since inception in October 2002, this ETF has posted an average annual compounded return of just over 10% as of Dec. 31. Its worst calendar year was 2020, when it fell 13.6%.
Distributions are paid monthly, but they are not consistent. They were cut twice in 2020, from $0.052 a month in December 2019 to $0.037 in April, May, and June. Payments are currently running at $0.051 per unit.
The management expense ratio is on the high side at 0.61%, but investors are getting their money’s worth in terms of performance.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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