Alternative Exposure with REIT ETFs Episode 77

Have You Ever Considered An Allocation That Isn’t Completely Market Tied

Have you heard how real estate has been doing? If you’re like some people you may be tempted to buy property or a rental. That comes with a set of obligations that may be lengthy. 

Did you know there is another way to have exposure to real estate in your portfolio without owning real estate outright?

Traditionally, this has been done by owning a Real Estate Investment Trust (REIT). Hold on though, because REITs come with details you must know. Sometimes if REITs are not traded they may have liquidity limitations. Which means you can only get money out at a certain time or after a certain period or if metrics are achieved. 

If the REIT is concentrated in only one sector, obviously that’s the only exposure you have. Sometimes the fees can be hard to ascertain in REITs too. These reasons alone are enough to say “forget it!” 

But like everything, companies have developed a more palatable route. You can now use a REIT that is held in an Exchange Traded Fund (ETF). Remember that ETFs are baskets or pools of various investments held jointly.

The thought process is that if one part of the fund is doing poorly, then the other parts that are doing well will pick it up. It’s a diversification tool, and the fund we use has exposure to commercial, residential, and international real estate. This creates a broad range exposure so that if one part of the industry is impacted, perhaps the other areas can balance it out.

ETFs were first introduced in the early 1990s, and they are completely liquid. So, anytime the stock market is open you may buy and sell ETFs. You can now have real estate exposure through a REIT with an ETF wrapper.

 I believe this may be important, because real estate is only about 45% correlated to the overall market. That means if the market dips, REITs do not mirror those losses normally.

ou may participate in the upside of real estate industry without directly owning real estate outright. The REIT ETF we use for our clients has earned 9.28% gross since inception, which is strong!

Obviously, if there was another housing crisis like we saw in 2008 and 2009 this type of fund may be impacted. However, it may be appropriate to allocate a portion of your portfolio to real estate to lessen the impact of an equity market correction.

 If you’d like to discuss if a REIT ETF is applicable for you,  call us at 864.641.7955.

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