Market Overview

This Real Estate ETF Can Keep Serving Up Upside

This Real Estate ETF Can Keep Serving Up Upside

Broadly speaking, the real estate sector and the related exchange traded funds have been impressive this year, but for investors willing to take on more tactical views, the real estate ETF rewards have been significantly higher in 2019.

Take the case of the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSE: SRVR), also known as the real estate ETF avenue to the 5G theme. SRVR, which tracks the Benchmark Data & Infrastructure Real Estate SCTR Index, is up 37.34% year to date.

Not only is SRVR beating the largest REIT ETF by more than 1,200 basis points year to date, the data REIT ETF is easily beating standard 5G investment options, including diversified technology ETFs and equity-based funds focused on the 5G theme.

Why It's Important

Data and infrastructure REITs are not only at the intersection of some of the real estate sector's most compelling growth trends, but these companies are far less adventurous than many investors may think.

“Like the rest of the REIT industry, infrastructure REITs encompass a range of specialties, but the primary purpose of those supporting the digital economy lie in cell towers, small cell technology, fiber connectivity, and data center platforms,” according to real estate analysis firm Nareit. “By developing essential infrastructure, these REITs are helping to provide benefits as diverse as improved digital literacy in remote areas, access to telehealth and other online health services, and remote energy usage monitoring—to highlight just a few examples.”

In other words, SRVR components are backed by solid business models and credible demand for those companies' offerings while still throwing off decent income. SRVR has a dividend yield of 1.62%, which isn't high, but it implies ample room for dividend growth and is better than the 1.27% on the S&P 500 Technology Index.

What's Next

Investors have been hearing a lot about 5G this year and SRVR's year-to-date performance reflects some of those expectations, but the next generation telecom system doesn't roll out in earnest until 2020.

“While the potential benefits of 5G for new foms of data usage may appear limitless, those in the industry stress that there is a long lead time before these features are fully realized as it will take time to build out the necessary architecture across the country,” notes Nareit. “For example, data centers will be tasked with significantly increasing computing capacity while vastly improving the speed at which that data is processed.”

Bottom line: there's a wave of real estate demand coming for telecom and data infrastructure thanks to 5G and SRVR is by far the better way of playing that theme compared to a standard REIT fund.

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