Andriy Yalansky
~ By Snehasish Chaudhuri, MBA (Finance).
IQ US Real Estate Small Cap ETF (NYSEARCA: ROOF) is an exchange-traded fund (“ETF”) launched by New York Life Investment Management LLC. and managed by IndexIQ Advisors LLC.The fund perfectly replicates the composition The IQ CBRE NextGen Real Estate Index is a rules-based modified market capitalization weighted float-adjusted index designed to provide exposure to the real estate sector and companies. The fund invests primarily in real estate investment trusts (“REITs”) that are expected to benefit from major trends impacting the real estate sector of the global economy. The fund is currently transaction At $46.22, it is a slight discount of 0.04% of net asset value (NAV’).that is expense ratio A bit high at 0.6%, mainly due to the low asset base.a year Portfolio turnover is 31%.
ROOF invested in the right sectors of REITs and delivered consistent yields
The IQ US Real Estate Small Cap ETF was launched in June 2011 approximately 12 years ago. The fund has targeted exposure to real estate securities that may benefit from his four long-term trends: digital transformation, e-commerce revolution, financial inclusion and generational change. CBRE Investment Management, which advises on index construction for IndexIQ Advisors LLC, has been managing real estate portfolios since 1984 and has the longest track record in the industry. The Fund has paid quarterly dividends for the last 12 years and has generated an average annual yield of 5.2% over the last 10 years. The 12-month yield is 4.1%, with annual yields roughly in the 4-6% range. Based on such consistent yields, ROOF recorded his 8.3% total return between 2016 and 2021.
REITs are considered safe investments with respect to trade war impacts as they are unlikely to have a significant impact on the sector. Despite being a global fund, it invests 77.5% of its assets in the US ROOF invests nearly 80% of its assets in industrial REITs, infrastructure REITs, data center REITs, and healthcare REITs . When analyzing funds (ETFs, CEFs, etc.), I see four sectors with the greatest growth potential over the next decade: industry, finance, healthcare, and information and communication technology (ICT). I have emphasized it repeatedly. Following the same logic, real estate investments in these four sectors also benefit the most. Therefore, we expect significant growth potential in industrial REITs, infrastructure REITs, mortgage REITs, data center REITs, and healthcare REITs.
With just $30 million in assets under management, ROOF’s portfolio consists of well-known REITs.
Additionally, small-cap REITs are much more well-known than small-cap companies in other sectors. AFC Gamma, Inc. (AFCG), CorEnergy Infrastructure Trust, Inc. (CORR), Community Healthcare Trust Incorporated (CHCT), Diversified Healthcare Trust (DHC), Global Medical REIT Inc. (GMRE), Centerspace (CSR), Cyxtera Technologies , Inc. (CYXT), INDUS Realty Trust, Inc. (INDT), NewLake Capital Partners, Inc. (OTCQX:NLCP), One Liberty Properties, Inc. (OLP), Plymouth Industrial REIT, Inc. (PLYM), Presidio Property Trust, Inc. (SQFT), Global Self Storage (SELF), Urban Logistics REIT plc (OTCPK:PCILF), Xior Student Housing NV (OTCPK:XIORF), Universal Health Realty Income Trust (UHT), Power REIT (PW) , Uniti Group Inc. (UNIT), and UMH Properties, Inc. (UMH) – all of these well-known REITs have a market cap of less than $1 billion. These smaller REITs have compiled impressive performances in recent years compared to larger REITs and may be attractive acquisition targets.
REIT funds have the option to make decent investments in these REITs despite their very small asset base. The IQ CBRE NextGen Real Estate ETF invested in half of the small-cap REITs listed above. In addition, these ETFs can also acquire a small percentage of his ETFs in large or mid-cap stocks. The market understands this and is pouring money into REIT ETFs. Briefly, the investors are American Tower Corporation (AMT), Prologis (PLD), Equinix (EQIX), Crown Castle (CCI), SBA Communications Corporation (SBAC), Keppel REIT (OTC:KREVF), Welltower Inc. (WELL), SEGRO plc (OTCPK:SEGXF), Alexandria Real Estate Equities, Inc. (ARE), Rexford Industrial Realty, Inc. (REXR) and AvalonBay Communities, Inc. (AVB), among others. not.
ROOF invests 55% of its assets in 11 of these large REITs and 11 other smaller REITs. Another 15% of the assets are invested in another 10 (relatively small percentages) – Equity Residential (EQR), Americold Realty Trust (COLD), Ventus (VTR), Invitation Homes (INVH) and Mid- America Apartment Communities, Inc. (MAA), Sun Communities, Inc. (SUI), EastGroup Properties, Inc. (EGP), First Industrial Realty Trust, Inc. (FR), STAG Industrial, Inc. (STAG), Healthpeak Properties , Inc. (PEAK) – This is also an established REIT. For a small cap fund with less than $30 million in assets under management (AUM), creating a portfolio consisting of all these stocks is very impressive. I don’t think the same is possible in other sectors, such as finance, healthcare, energy, and the consumer cycle.
ROOF’s Portfolio Generates Strong, Sustainable Yields Despite Low AUM
According to my “7-Factor Model for Valuing Global Equity Funds,” the IQ US Real Estate Small Cap ETF is favorable. It is eligible to meet minimum stock price requirements, has been able to generate strong yields over the years and has successfully achieved its goals of generating a stable current income. However, this REIT ETF has a very low AUM. We generally don’t cover his funds with less than $200 million in AUM. But the main reason I picked up this fund is that, despite having less than his $30 million in assets under management, ROOF’s portfolio could be something investors interested in real estate companies would otherwise seek. He was a well-known and established REIT. Needless to say, these REITs are major players in their respective segments.
The majority of ROOF’s assets are invested in industrial REITs, infrastructure REITs, data center REITs, and healthcare REITs. I see great growth potential in these segments over the next decade. We mainly invest in the US market. The fund has paid quarterly dividends since its inception and has generated above average yields over the past decade. ROOF’s average annual total return isn’t in the double digits, but it’s still good enough. We also believe the fund can sustain current yield levels as it invests in his well-established and popular REITs in the right segment of REITs.
Income-seeking investors interested in the real estate sector should find the IQ US Real Estate Small Cap ETF attractive as, in most cases, individual REITs generally do not generate strong yields. Therefore, I would argue that investors should not miss this ROOF fund of his, even though it has a very small asset base.
