Real estate investment trusts (REITs) are created to produce income for investors through financing or owning and operating income-producing property, pretty much of all types.
Tax law requires REITs to pass at least 90% of their taxable income through to investors. They're also a way to directly benefit from owning real estate without directly owning it.
You can buy publicly traded REITs directly, or you can invest in pools of them through REIT ETFs (exchange-traded funds). For instance, one of the biggies among the latter is Vanguard Real Estate Index Fund, an ETF with about $83 billion invested in tracking the MSCI US IMI Real Estate 25/50 Index.
And now, there's a new entry, a REIT ETF that just launched Sept. 22 and uses its own rules-based index to invest in 100 of the country's highest-dividend-yielding real estate securities. The REIT ETF is called the Hoya Capital High-Dividend Yield ETF (NYSE: RIET), and its index is the Hoya Capital High Dividend Yield Index.
The second ETF from a 2015 startup sort of mirrors the first
RIET is from Hoya Capital Real Estate, an investment advisory and research service based in Rowayton, Connecticut. The company says it begins the selection process by screening for lower-leverage profiles and then choosing based on dividend yield across 14 property sectors and three market capitalization tiers.
"By taking this approach, RIET is able to achieve a yield that is more than twice that of the market cap-weighted averages, and doing so in a portfolio that doesn't go 'all-in' on any single property sector or leave investors exposed to outsized idiosyncratic risks that you'd often find with more concentrated portfolios of high-yielding REITs," Hoya's founder, president, and director of research Alex Pettee told the Commercial Observer.
Its top 15 holdings, as listed on Hoya's website, are a diverse lot led by Healthcare Trust of America, Iron Mountain, Public Storage, Digital Realty Trust, and Annaly Capital.
RIET is one of two real estate-focused ETFs offered by Hoya. The other is the Hoya Capital Housing ETF (NYSE: HOMZ). As of Sept. 23, that fund reported $74.76 million in assets and top 10 holdings, with Lowe's and Home Depot at the lead, followed by residential REITs, including Camden Property Trust and Independence Realty Trust; and self-storage REITs such as Extra Space Storage and CubeSmart.
"RIET exclusively targets the income side of the real estate sector, making it the perfect complement to HOMZ, which seeks to invest in some of the fastest-growing real estate securities," Pettee, who launched Hoya in 2015 and HOMZ in 2019, said in the launch announcement.
"With RIET and HOMZ, investors are now able to better align their portfolio with their specific investment objectives -- whether it be higher income or higher growth."
The Millionacres bottom line: reading the RIET act
Pettee and Hoya are offering two choices: one with a focus on higher income, the other on higher growth. Both are interesting ideas and worth following. I'm going to -- and I may just buy in myself, sooner than later.
I especially like the income idea. RIET's not a REIT, but it provides the income and exposure of one while spreading the risk among multiple securities. I think that will give some support to a portfolio in the market downturn that seems as if it must happen sometime. Amirite?