Market Overview

IndexIQ Goes Small, Small-Cap That Is, With New REIT ETF

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IndexIQ, the New York-based ETF issuer known for its quantitative strategy ETFs and a lineup of global small-cap funds, is once again going where no other ETF issuer has gone before with the introduction of the IQ US Real Estate Small Cap ETF (NYSE: ROOF), which made its trading debut today.

With an expense ratio of 0.69%, ROOF will hold 36 stocks with a weighted average market cap of just over $1 billion. Beyond that, ROOF may immediately be a compelling option for investors looking to capture some yield as the new ETF sports a dividend yield of 4.98%, according to the ETF's fact sheet.

Mortgage REITs, retail REITs, and office REITs made up 20.73%, 17.97%, and 17.68%, respectively, of the fund's underlying index as of May 31, 2011. Hotel, diversified, specialized and residential REITs will also be featured in ROOF's mix.

Roof's five largest holdings are Invesco Mortgage Capital (NYSE: IVR), DCT Industrial Trust (NYSE: DCT), Lexington Realty Trust (NYSE: LXP), Redwood Trust (NYSE: RWT) and Sunstone Hotel Investors (NYSE: SHO).

“Performance among both small- and large-cap REITs took a big hit at the start of the financial crisis in 2007, but since 2009, REITs have seen a performance resurgence, with small-cap offerings far outpacing the performance of their large-cap counterparts,” said Adam Patti, CEO of IndexIQ, in a statement.

“In today's environment, investors are hungry for income producing assets. With ROOF, ETF investors now have the potential to capture a robust new income stream and significant capital appreciation by isolating small cap US real estate exposure; and they can do this in a transparent, liquid, tax efficient way.”

ROOF could also prove to be a winning bet if mergers and acquisitions activity among REITs picks up this year, as some analysts have speculated it will. The new ETF's small-cap constituency could prove to be fertile ground for larger REITs looking to do some shopping.

ROOF is the second new ETF introduced by IndexIQ this month following the IQ Japan Mid Cap (NYSE: RSUN), which debuted on June 2. The firm now has 16 ETFs on the market and had $312 million in assets under management at the end of May, according to data from the National Stock Exchange.

 

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