Bond King Gross Declares Real Estate to Beat Stocks and Bonds – How to Play It

by ETF Base on April 15, 2010

On CNBC today bond king Bill Gross said that real estate is nearing a bottom and eventually could be a better bet for investors than stocks or bonds.  Given the run we’ve seen in stocks since the March 2009 lows, it’s not a stretch to say that perhaps other asset classes will outperform from here.  There are several ways to play real estate.  While getting into the landlord business will require a lot of capital up front (usually at least 25% down as opposed to the wild west days earlier this decade), REITs and ETFs are an optimal way to participate in the sector.  Many players in both classes have performed spectacularly given the crushing blow they were dealt during the credit crisis, but comparatively speaking, they may have much more room to run.

Real Estate Investment Trusts have some special characteristics that income investors love, namely that due to their favorable tax treatment, they must distribute fully 90% of their income to investors.  This translates into very rich yields for even the most prolific and healthiest of REITs.  See more on tax treatment and a full list of all 140 Real Estate Investment Trusts listed on US exchanges.

Below is a brief snapshot of a few of the most heavily traded REITs of late and and 2 REIT ETFs:


Ticker: KIM
Name: Kimco Realty
Return YTD: 16%
Return 1 Yr: 53%
Trailing Yield: 3.9%

Ticker: HST
Name: Host Hotels and Resorts
Return YTD: 29%
Return 1 Yr: 156%
Trailing Yield: n/a (Dividend cut to 1 cent due to financial crisis)


Ticker: VNQ
Name: Vanguard REIT Index ETF
Return YTD: 13%
Return 1 Yr: 71%
Trailing Yield: 2.7%

Leveraged REIT ETF

Ticker: DRN*
Name: Direxion Daily Real Estate Bull 3X Shrs
Return YTD: 39%
Return 1 Yr: 222% (since launch Jul-2009)
Trailing Yield: 1.4%

*This ETF delivers triple the daily return of MSCI US REIT index.  For a near term trade for purely speculative purposes, this would be your ETF.  Note however, that leveraged ETFs are Never, Ever a good “investment” for a buy and hold.  Due to the nuances of daily rebalancing (and fees of course), the value of these ETFs decay over time, which is magnified in spectacular fashion for highly volatile sectors such as the current real estate sector performance.  For a full visual on how you can lose money on both a long and short leveraged ETF simultaneously regardless of underlying sector performance, see this article on why Leveraged ETFs are Evil.

Disclosure: No positions in any REITs or ETFs covered in this article.

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