A passive approach can be a prudent way to invest in real estate securities. You’re assured of diversification by geography and by property type so you’ll get returns that reflect the broad real estate market. Choices include:
- Vanguard REIT Index Fund. At 21.18 percent, through 2004, this fund’s five-year annualized return was on par with the group’s 21.36 percent It follows the Morgan Stanley REIT [real estate investment trust] Index.
- streetTRACKS Wilshire REIT Fund. One of several real estate exchange-traded funds (ETFs) that have been introduced in the last few years, it follows the Wilshire REIT index. Returns are comparable to those of the Vanguard fund.
- iShares Cohen & Steers Realty Majors. This ETF tracks a customized index, with over half of its assets in its top 10 holdings. This fund has one of the best three-year records of any passive real estate fund, because those top holdings have performed so well.
- PIMCO RealEstateRealReturn Strategy Fund This fund uses derivatives to produce the Wilshire REIT index return while most of the money actually invested in this fund in placed in Treasury-Inflation Protected Securities (TIPS). Long-term, if the return on the TIPS exceeds financing and transaction costs, returns to investors will top the passive index return.
