iShares S&P/TSX Capped REIT Index ETF (XRE.TO)

REITs. We are basically coming up to resistance. He does not think we will break through there. He is selling REITs and is almost out. The dividend is not as attractive as in some other sectors. He would buy REITs if they got back to their lows. If there is a cyclical recession in the next few years, then REITs will underperform in that kind of environment.

Hasn’t owned this for a while, because it is dominated by 2 companies, RioCan (REI.UN-T) and H&R Real Estate (HR.UN-T). He tends to be careful on any kind of ETF that has 20% or more of one company, you might as well just buy the stock. The emphasis of RioCan is really on Canadian shopping centres, and he doesn’t expect much to happen on the shopping centre side. Prefers the iShares Dow Jones Real Estate (IYR-N) which has a really nice array of properties, and it is spread out all over the US.

REITs are one of those things that are hard assets (tangibles) that are really good portfolio diversifiers. He is sort of indifferent regarding REITs. He can see a case being made both ways.

This tracks the REIT Index. A fairly well diversified index which includes the larger capitalization REITs in Canada. It is heavily weighted towards the 10 largest Canadian REITs. If you just want a broad basket of REITs, this is not a bad alternative. The yield is very sustainable. 5.6% dividend yield.

ETF’s do have a great use. He especially likes them when you are not sure if you want to be in a sector or not. It allows you to get in and get out. This is a great way to play the REITs. However, if you are investing over the long-term, he would go more with an active strategy.

There is a difference between commercial and private homes. He does not think interest rates will go up in a big way for years. It will not pose a risk to REITs. There will be a slowdown in housing in Canada because of the new rules. $18 is resistance. If it fell another 5-7% to the bottom of the range of the last couple of years, then it would be a buy.

The REITs market is very subject to interest rates. If you are buying into REITs, you have to be aware that there has been a big explosion in real estate, however you have managers that know what they are doing. If you want to be in the sector, it has a good rate of return. Just be a little cautious and don’t go nuts.

He sold most in the spring. He is out of REITs now. Interest rates will stay low for decades, but it is only a goto sector during periods of weakness.

$15.70 is the resistance level and then the next one is at $15.74. We have a down trend break. He would not jump in here, but would wait for a new high.

They are separating REITS out of financials in Canada in September. He does not see any net buyer because of this. He has cut his exposure to REITs in half in the last week. He prefers ZRE-T because of broader exposure.

Has been losing ground, likely because of concern about higher interest rates. This is in real estate and they are leveraged. Real estate should be a small part of a portfolio, but not sure it should be a big part. If you own, he would consider moving over to RioCan (REI.UN-T), one of the best ones in Canada.

Something you want to be careful of when looking at REITs is that interest rates will eventually move up. This is why you are seeing some weakness in the REIT market in Canada. On top of that when you pile on what is happening with oil prices and what is happening in Western Canada, and how it may flow into eastern Canada, it is probably not a good time to be entering into REITs.

Protecting yourself if you are overweight in REITs? If you are concerned about this sector, he would Buy a Put. Option premiums, particularly in this sector, are quite low so it doesn’t cost you much to hedge your downside. Buying a Put Option; if the REIT goes down in value, the option will go up offsetting your loss. An insurance policy and you are buying it at a relatively cheap rate. Not sure he would do this. The cash flow off a REIT is very solid and doesn’t think they are frothy.

One third of this is in Riocan (REI.UN-T) and H&R Real Estate (HR.UN-T), so it is not equal weight. You have to like these 2 companies because you are buying a 3^rd of them through this ETF. A 4.75% yield which is nice. REITs are interest rate sensitive and real estate companies and REITs tend to borrow a lot of money, which could affect their operations. With interest rates started to move up, he is a little light on the REIT market. He would prefer a Telus (T-T) or BCE (BCE-T), high dividend players where you will see dividend growth.

This holds about 25% of RioCan (REI.UN-T). He is always a little bit hesitant with REITs and he doesn’t hold many right now. This is because of the interest rate sensitivity. He is not anxious to be buying any right now. There are other income options he prefers.