ETF Eyes Real Estate, Storage and Health Properties

05/14/2018 5:00 am EST

Focus: REITS

John Persinos

Managing Editor, Personal Finance

iShares Residential Real Estate Capped ETF (REZ) is an exchange-traded fund (ETF) that tracks the investment results of the FTSE NAREIT All Residential Capped Index composed of U.S. residential, health care and self-storage real estate equities, notes John Persinos, editor of Investing Daily's Personal Finance.

REZ is operated by ETF behemoth BlackRock (BLK), with a portfolio of about 50 holdings that provides exposure to the U.S. residential real estate market via real estate investment trusts. REZ is a hedge against rising inflation that also allows investors to tap the booming real estate market.

Among the most successful inflation hedges within the REIT category is self-storage, a property type characterized by short lease terms and therefore frequent lease turnover and renegotiation.

Americans are increasingly nomadic, moving from location to location, in turn fueling demand for storage units. REZ’s top holding is Public Storage (PSA), at 10.38% of assets. PSA is the operator of those orange self-storage warehouses you see everywhere. You probably never thought of PSA as an effective inflation hedge but think again.

With a market cap of $33.6 billion, Public Storage is the largest storage company in the U.S. This REIT has an ownership interest in 2,386 U.S.-based self-storage facilities and 222 European storage facilities. The storage spaces are available for lease on a month-to-month basis, for personal and business use.

As the number of Americans selling their homes and storing their belongings skyrockets, Public Storage is the best way to leverage this trend.

Other top REZ holdings that I particularly like include Welltower (HCN) at 7.07% of assets and Ventas (VTR) at 6.15%.

Welltower invests in senior housing, assisted living communities, post-acute care facilities, and medical office buildings. Demographic trends favor long-term growth for HCN, as Americans get older and sicker. All of those Baby Boomers are turning gray and need ever-greater care.

Ventas invests in hospitals, skilled nursing facilities, senior housing facilities, medical office buildings and other health-care related facilities. As with Welltower, Ventas is a dual play on real estate growth and booming health care demand among the elderly.

Real estate has long been one of the most effective strategies to preserve wealth during inflationary periods. REITs overall have been excellent at wealth preservation. REZ should live up to this expectation, especially since it’s also plugged into the unstoppable trend of rising health care demand.

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