Property ETFs are looking attractive again as fears ease over spiralling interest rates which undermined the sector throughout 2013. The property sector has accounted for 31% of all ETF investment in 2013, the 3bn invested to March 6th this year already 43% more than during the whole of 2013.Fears that the FED would scale down its bond buying program prompted last year’s drop in investment, but a growing US economy has stoked optimism, lowering borrowing costs and persuading landlords to increase occupancy rates in the industrial and retail spaces, and push up rents.
The average effective rent figure for office space has risen from $22.98 per square foot to $23.48, with retail rents climbing to $16.83 from $16.59 at this stage last year. Vacancy rates have also declined.
The biggest winner so far is Vanguard Group Inc’s REIT ETF, which has attracted $1.25 billion of inflows in the past month alone. Blackrock’s Ishares US has gained a half a billion over the same period, the trigger in both cases being a sizeable holding in Simon Property Group, the largest mall owner in the US, which reported 8% growth in funds from operations through the last quarter of 2013.
REITs, or Real Estate Investment Trusts, are unique in that they are exempt from taxes, provided they pay 90% of their taxable income in dividends to investors.
Pessimism regarding poor weather and even poorer sales volumes in the US, dubbed the “Polar Vortex”, appear to have been unfounded, and ETFs have been a major beneficiary, particularly in the fast recovering consumer goods sector.
The Consumer Discretionary Select Sector SPDR fund, which includes Amazon.com and Walt Disney Co. is considered a benchmark for the non-essential goods sector, and has so far outpaced the broader market SPDR S&P 500 ETF by 2.3 percentage points since February, having lagged 3.3 percentage points behind.
Payroll figures in the US were up by 175,000 last month and disposable personal income was also up by 0.3%. According to Bloomberg data, consumer-discretionary ETFs have attracted $72.6 million of funds over the past 20 days.
Meanwhile, the no. 1 US small cap equities fund according to Bloomberg’s annual ranking of mutual funds, was the $580 million USD Buffalo Emerging Opportunities Fund, which has returned an annualized 32.4 percent growth over the past 5 years, to add to a staggering gain of 61.3% in 2013 alone. The Fund remains bullish on prospects of further growth for the equity sector in 2014, despite the S&P 500 recently hitting an all-time high.
John Bischelmeyer, the fund’s Manager, believes that uncertainty in developing markets is having a negative effect on commodity prices, good news for growth in the US.
Number 2 in Bloomberg’s list, the Matthew 25 fund, has returned 31.5 percent annualised over the last 5 years. The best performer in the global equities category was the $13 billion New Economy Fund, which has made a series of wise investments in science and technology companies from around the globe.
Finally ETF funds focused on the health-care sector have seen an influx of investment as a spate of innovative new products come to market.
Over $4 billion USD has flowed into the sector, representing 51% of total US ETF investment, more than at any time since 2008. Legislation brought in by the Obama administration, dubbed Obamacare, was initially damaging, as the health sector performed poorly losing $1 billion USD in 2009 after the legislation was approved.
The pessimism proved unfounded however; as the sector returns to full health, the NASDAQ biotechnology Index has risen 18% in 2014, and ETFs are seen as a risk off way to gain access to new developments in pharmaceuticals.
Exchange Traded Funds, or ETFs, are securities which track an index, or basket of securities which represent the composition of an index, and can be easily bought and sold without the unsystematic risk often associated with investing in individual companies. Inflows to ETFs in the US have tripled since 2004, to $ 183 billion USD.