Real Estate ETFs Hit New Highs

Real estate sector has rebounded strongly after its worst 2018 since the financial crisis. Most of the stocks and ETFs hit fresh highs this year. The outperformance was powered by the Fed’s cautious stance that it is not in a hurry to raise rates this year after four rates hike in 2018. This has returned the lure for rate-sensitive sectors. In fact, interest rates retreated from peak levels in November with the 10-year yield nearly 60 basis points below its 2018 peak.

The domestic economy is booming with strong job growth and higher consumer spending, thereby brightening the prospect of the real estate sector. This is because growth in the economy translates into greater demand for real estate, higher occupancy levels, and landlords’ greater power to ask for higher rents.

Global headwinds including still-unresolved U.S.-China trade war, global growth concerns, geopolitical tensions, and Brexit concerns are making investors jittery, raising the appeal for these stocks. This is because these often act as a safe haven in times of market turbulence and concurrently offer higher returns due to their outsized yields.

REITs own and operate income-producing real estate. They are required to distribute at least 90% of taxable income to shareholders annually in the form of dividends and, in turn, can deduct those dividends paid from their corporate taxable income. Thus, REITs offer juicy dividend yields. Further, REITs have a low correlation with other stocks and bonds, thereby providing huge diversification benefits to the portfolio.

Given the bullish fundamentals, we have highlighted a few real estate ETFs that hit new one-year highs in the last trading session. Any of the following funds could be excellent picks for investors seeking to benefit from the defensive flight and a pause in Fed’s tightening policy. All these products carry a Zacks ETF Rank #3 (Hold) with a Medium risk outlook:

Schwab US REIT ETF (SCHH - Free Report)

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