Real estate is an important component of any diversified portfolio. As a way to enhance a fixed-income portfolio, investors can consider real estate ETFs for an alternative yield-generating option to hedge against inflationary pressures and potentially generate attractive returns and growth in the environment ahead.
On the upcoming webcast, Real Estate ETFs: Where to Start?, Kevin Davis, Chief Growth Officer for Vident Financial; Jerry Bowyer, Chief Economist at Vident Financial; Andrew Alden, Head of Quantitative Research at WeatherStorm Capital; and Fred Stoops, Head of Real Estate at Vident Financial, will take a closer look into the real estate sector as an alternative asset to diversify a fixed-income portfolio.
Real estate is one way investors can diversify a portfolio since the asset category exhibits low correlation to other assets and offers unique characteristics like a potential inflation protection, attractive dividend income and history of high returns.
“This unique combination of characteristics – a historical track record of inflation protection, income generation, and attractive returns – drive the diversification benefits seen from incorporating real estate in long-term portfolios,” according to Vident Financial.
Specifically, ETF investors who are interested in the real estate sector may consider something like the U.S. Diversified Real Estate ETF (NYSE Arca: PPTY) to gain diversified exposure to real estate investment trusts and the yield opportunities that this segment of the market presents.
PPTY’s portfolio is constructed based on the actual properties held by each company in the investment universe. The smart beta index-based ETF screens for four primary factors when investing in real estate, including location, property type, leverage and governance.
Location can affect the value of a property and is a key driver of real estate performance. Stable targets are used to diversify geographic exposure while favoring dynamic, high-growth locations.
Differences between property types also produce varying results. The fund’s fixed allocations seek to ensure diversification and balance.
Leverage and governance factors are further included to reduce exposure to higher risk companies. The responsible use of leverage can potentially enhance returns, but taking on too much debt is risky, so the portfolio includes companies with prudent leverage. Additionally, firms with significant governance risks like external management are excluded from the portfolio to diminish further unknowns.
Financial advisors who are interested in learning more about the real estate sector can register for the Thursday, March 14 webcast here.
