High-Yield ETFs And CEFs: No Free Lunch

Published Thu, 10 Sep 2020 10:00:00 -0400 on Seeking Alpha

Seeking AlphaETF AnalysisHigh-Yield ETFs And CEFs: No Free LunchSep. 10, 2020 10:00 AM ET|| Includes: AWP, BBRE, CHIR, DRW, EWRE, FFR, FREL, FRI, GQRE, HAUZ, ICF, IFGL, IGR, INDS, IYR, JDD, JRS, KBWY, MBB, MORT, NRO, NURE, OLD, PFFR, PGZ, PPTY, PSR, RDOG, REET, REM, RFI, RNP, ROOF, RQI, RWO, RWR, RWX, SCHH, SRET, SRVR, USRT, VNQ, VNQI, VRAI, WPS, XLREby: Hoya Capital Real EstateHoya Capital Real Estate iREIT on AlphaiREIT, the #1 real estate service for sleeping well at night. Summary"Give me yield or give me death." In a world of perpetually low interest rates, investors have piled into yield-oriented equity sectors to quench their voracious appetite for income.
High-yield real estate ETFs and CEFs have been popular options, which typically offer juicy dividend yields of 5-10% compared to their broad-based real estate ETF counterparts yielding below 4%.
On Wall Street, there’s no free lunch. High-yield funds REITs been slammed by the coronavirus pandemic, bearing the brunt of the wave of dividend cuts that has bedeviled the sector.
While roughly a third of the equity REIT sector cut or reduced dividends in 2020, many of these high-yield ETFs and CEF saw 60-85% of their constituents cut dividends this year.
These ETFs typically include a collection of misfits, outcasts, small-caps, and recent underachievers. CEFs add another dimension by utilizing leverage. Understanding the source of excess yield is essential.
Real Estate ETF and CEF Spotlight
Exchange-Traded Funds ("ETFs") are an excellent option for investors seeking low-cost, liquid, and diversified exposure to real estate. Closed-End Funds ("CEFs"), a fund structure that shares some similarities but also some critical differences from ETFs, can also make sense for certain investors who are seeking high income, access to leverage, active management, and are willing to pay a steep expense premium for it. In our ETF Spotlight series, we take a look under the hood of some of the most popular... Read more