REIT Index

Real estate investment trusts (REITs) are tax-advantaged real estate investments that provide diversification and the potential for high earnings to investors. REIT index investments incorporate a variety of REIT securities across a broad spectrum of the real estate market, including diverse geographical areas and a wide range of types of real estate investments. Mortgage REIT securities offer a higher potential for profit, but also present higher risks to investors as opposed to equity REITs that are based on ownership of the properties in question. In many cases, REIT index investments allow investors to hedge against major fluctuations in the interest rate or the stock market, making these securities a valuable asset in a well-balanced portfolio.

REIT index funds


For most investors, REIT index funds offer near-instant diversification in the real estate investment market and are even used to evaluate the overall real estate market. One of the largest and most popular REIT index funds is the FTSE NAREIT Equity REIT Index fund; it is often used as a key indicator of the performance of the real estate sector of the economy. Real estate investments characteristically outperform the stock market, making REIT index funds an attractive prospect for many investors looking for moderate to high returns on their investment with lower risk than most other securities. REIT index exchange-traded funds (ETFs) offer a similar risk and reward profile, but incorporate a wide array of trading options; this flexibility makes them a favorite among hands-on investors but increases their overall volatility compared to other types of REIT investments. Other major REIT index funds include the short and long Direxion Leveraged REIT ETFs, the FTSE EPRA/NAREIT funds for Europe and Asia, and the Vanguard MSCI U.S. REIT index, which offers long positions on the U.S. REIT market.

REIT index ETFs


REIT index ETFs are traded on stock exchanges, making them a more liquid investment and increasing their risk and reward commensurately. As with REIT index funds, a key factor in determining which REIT index ETF offers the best prospects for high profits is to examine past performance and current management policies. Because real estate investments are typically over-depreciated on paper, it is essential for investors to evaluate companies based on funds from operations rather than the payout ratio when determining the yield value of a particular REIT index ETF. This will produce a more accurate picture of the overall health of the ETF and the earnings potential it can provide.

Conclusions


REIT index funds and ETFs provide a valuable way for investors to diversify their holdings in the real estate investment market. Because real estate typically outperforms the stock market, these investments can offer significant advantages to investors who are interested in both short-term yields and long-term profits from the same diversified investment.
Tim Ord
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