The combination of a middling Process Pillar rating and a Below Average People Pillar rating limit  Vident U.S. Diversified Real Estate ETF to a Morningstar Medalist Rating of Neutral.  The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar. The strategy earns an Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in yield exposure and liquidity exposure compared with category peers. High yield exposure is attributed to holding more stocks with high dividend or buyback yields. And a high liquidity exposure is rooted in stocks with higher trading volumes, lending managers more flexibility. The strategy's parent organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including overall affordable fees and a strong risk-adjusted track record.

Analyst Rating

AvalonBay Communities

Prologis

Equinix

Four Corners Property Trust

Simon Property Group

Equity Residential

Digital Realty Trust

Easterly Government Properties

American Homes 4 Rent

Terreno Realty

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Vident U.S. Diversified Real Estate ETF earns an Average Process Pillar rating. The main driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Respectable risk-adjusted performance also supports the rating. This can be seen in the fund's five-year alpha calculated relative to the category average, which suggests that the process was successful over that period. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 25%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the performance, before fees and expenses, of the USREX – U.S. Diversified Real Estate Index™.  Under normal circumstances, at least 80% of the fund’s net assets, plus borrowings for investment purposes, and will be invested in real estate companies principally traded on a U.S. exchange. The index uses a rules-based methodology to provide diversified exposure to the liquid U.S. real estate market. 

 The portfolio is overweight in consumer cyclical by 3.8 percentage points in terms of assets compared with the category average, and its healthcare allocation is similar to the category. The sectors with low exposure compared to category peers are real estate and financial services, with real estate underweighting the average portfolio by 3.3 percentage points of assets and financial services similar to the average. The portfolio is positioned across 97 holdings and is less top-heavy than peers. Specifically, 32.2% of the portfolio's assets are concentrated within the top 10 fund holdings, compared to the category’s 59.9% average.

Average

Process

Vident Financial’s team earns a Below Average People Pillar rating. The team benefits from the strategy's costs, which rank in its category's least costly fifth. A higher expense ratio reduces net returns, so low costs give this team an advantage. However, the rating is held back by the turnover of management across its parent firm. The firm's asset-weighted manager tenure of seven years suggests it could do more to retain portfolio managers. The combined average three-year excess return of each manager also weakens the team. It suggests that the funds they manage have fallen short of their respective category's average return.

Below Average

People

Vident Financial has some investor-friendly attributes, but other attributes warrant caution, leading to an Average Parent Pillar rating. A strength of Vident Financial is that its product shelf of open-end and exchange-traded funds is, on average, offered at a minimal cost, suggesting that it considers what's best for its investor base. On average, fees for funds are in the cheapest quintile of respective category peers. Vident Financial's risk-adjusted performance compares similarly to competitors. Across its open-end and exchange-traded funds, the firm’s average five-year Morningstar Rating is 3.3 stars, which is about standard. Average asset-weighted tenure of seven years among the longest-tenured managers at Vident Financial is on par with peer firms. In isolation, seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions.

Parent

US Diversified Real Estate ETF

PPTY tracks an index of fundamentally-selected and -weighted US-listed equities that derive income from the ownership or management of real estate.

Alexandria Real Estate Equities

JPMorgan BetaBuilders MSCI US REIT ETF

Broadstone Net Lease

Blackstone Group

CTO Realty Growth

CareTrust REIT

Diversified Healthcare Trust

Direxion Daily Real Estate Bull 3x Shares

Direxion Daily Real Estate Bear 3x Shares

Ellington Residential Mortgage REIT

Empire State Realty Trust

Fidelity MSCI Real Estate ETF

First Trust S&P REIT Index Fund

Highwoods Properties

iShares Cohen & Steers REIT ETF

Independence Realty Trust

iShares U.S. Real Estate ETF

Nuveen Real Estate Income Fund

Invesco KBW Premium Yield Equity REIT ETF

LTC Properties

Neuberger Berman Real Estate Securities Income Fund Inc

Realty Income Corp

Public Storage

Invesco Active US Real Estate

ALPS Active REIT ETF

Virtus Real Asset Income ETF

U.S. equity markets declined this week while benchmark interest rates jumped to the highest level since November after stronger-than-expected employment data showed robust hiring trends in early 2024. Stagflation has crept back into the economic discussion over the past several weeks amid a resurgence in oil prices alongside economic data showing stubbornly lukewarm inflationary trends. Following two straight weeks of gains which had lifted the benchmark to record-highs, the S&P 500 declined by 0.9% this week. Real estate equities were among the laggards this week.

A Crude Problem

American Tower

Essex Property Trust

H&R Block

ProShares Short Real Estate

Cohen And Steers Total Return Realty Fund

Cohen & Steers Reit And Preferred Income Fund Inc

Cohen & Steers Quality Income Realty Fund

SPDR Dow Jones REIT ETF

Real estate investment through REITs is popular because REITs distribute generous dividends and also they're easy to understand.

Investing In Real Estate Through REITs

Healthpeak Properties Inc

Ellington Financial

Extra Space Storage

Global Net Lease

Kimco Realty

Gladstone Land

Ready Capital Corp

Regency Centers

Two years of persistent rate-driven pressure on commercial and residential real estate markets appeared to be easing in early 2024, but firming inflation has again muddied the outlook. Expectations of "Higher for Longer" have merely shifted to "High for Long." Many private equity funds and some highly-levered REITs were ill-prepared for a period of sustained 4-5%+ benchmark rates. Private markets are finally feeling the pain that beset public REIT investors since 2021. Commercial property values have now declined over 20% nationally, and nearly 40% in some troubled segments.

State Of REIT Nation: Not Out Of The Woods, Yet

Schwab U.S. REIT ETF

Seven Hills Realty Trust

ProShares UltraShort Real Estate

Pacer Funds Trust-Pacer Benchmark Data & Infrastructure Real Estate Sector ETF

How REITs have fared through high interest rate environment. Takeaways from REITs earnings season so far. When rate cuts do come, some REIT sectors may stand to benefit.

Why Lower Rates Could Lead To Opportunities In REITs This Year

ProShares Ultra Real Estate

iShares Core U.S. REIT ETF

Vanguard Real Estate ETF

The yield on 10-year Treasury Inflation-Protected Securities TIPS fell significantly from ~2.5% to ~1.7% in the last two months of 2023. How does this affect real estate? As long-lived, fixed assets with inflation-protective characteristics, quality real estate can be viewed as an equivalent to TIPS plus a risk premium.

An Opportunity For REITs To Shine In 2024

AGNC Investment

Boston Properties

Crown Castle International

iShares CMBS ETF

Dynex Capital

Equity LifeStyle Properties

Jones Lang LaSalle

iShares MBS ETF

Medical Properties Trust

Orchid Island Capital

U.S. equity markets notched another week of gains after a busy slate of economic data and corporate earnings results were broadly consistent with a "soft landing" trend for the domestic economy. Ahead of the Federal Reserve's first policy meeting of 2024, the FOMC's favored inflation gauge - Core PCE - showed a "2-handle" for the first time in nearly two years. Notching a series of record highs through the week, the S&P 500 advanced 1.2%, extending its impressive rally since late October to 12 of the past 13 weeks.

Fed Looms As Earnings Begin

After lagging equities for the past two years, REITs offer an attractive investment opportunity in 2024. Peaking or falling yields have historically been a catalyst for strong REIT market outperformance.

2024 Listed REITs Outlook

Real estate earnings season kicked into gear this week, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. The sector with perhaps the most to gain from moderating inflation and a normalization in Fed monetary policy, REITs enter earnings season with upside momentum after a dismal eighteen-month stretch. Sentiment and macroeconomic conditions have improved significantly in the past quarter, fueled by several months of encouraging inflation data pointing once again towards a "soft landing" for the domestic economy.

REIT Earnings Preview: Animal Spirits Revived?

D.R. Horton

Hannon Armstrong Sustainable Infrastructure Capital

Invitation Homes

M.D.C. Holdings

MFA Financial

Pebblebrook Hotel Trust

U.S. equity markets posted another week of gains as investors weighed conflicting indications on economic momentum and the need for rate cuts, with strong economic data offsetting soft corporate earnings. Swaps markets are now pricing in roughly 45% probability that the Federal Reserve will begin its rate-cutting cycle in March, down from odds of over 80% in the prior week.

Rate Cut Rethink

CubeSmart

National Storage Affiliates Trust

Global Self Storage

Self-Storage REITs delivered incredible growth early in the pandemic driven by surging housing market activity, but have been victims to their own success of late amid a supply-driven cooldown. Robust double-digit rent growth and relatively low operational barriers to entry prompted a wave of new development, with a roughly 12% expansion in total supply expected between 2022 and 2024. This supply boom - twice the magnitude of the multifamily sector - has reignited fierce "storage wars" between competing facilities, which has led to double-digit dips in new lease rates since mid-2022.

Storage REITs: Victims Of Own Success

Principal Real Estate Active Opportunities ETF

CorEnergy Infrastructure Trust

Dimensional US Real Estate ETF

Dimensional Global Real Estate ETF

iShares Environmentally Aware Real Estate ETF

Goldman Sachs Future Real Estate And Infrastructure Equity ETF

Home Appreciation US REIT ETF

Pacer Benchmark Industrial Real Estate SCTR ETF

JPMorgan Realty Income ETF

Janus Henderson U.S. Real Estate ETF

NETLease Corporate Real Estate ETF

Nuveen Short-Term REIT ETF

Pennsylvania Real Estate Investment Trust

The REIT sector closed the year out strong with a +11.40% total return in December, pushing into positive territory for the full year (+8.66%). Small cap REITs (+13.39%) outperformed in December. Large cap REITs (+9.55%) averaged a lower return than their smaller peers. 90.79% of REIT securities had a positive total return in December with 66.25% in the black for the full year.

The State Of REITs: January 2024 Edition

Apartment Income REIT Corp

Clipper Realty

Camden Property

Centerspace REIT

Elme Communities

Mid-America Apartment Communities

NexPoint Residential Trust

Apartment REITs were among the weakest-performing property sectors for a second-straight year in 2023 - lagging even the battered office sector - despite delivering another year of mid-single-digit earnings growth. Following two years of record-setting rent growth, residential rents decelerated in 2023 alongside a broader cooling of inflationary pressures, with multifamily rents seeing a particularly sharp cooldown amid supply headwinds. The wave of pandemic-era development - started at a time when rents were rising double-digits - resulted in a record year of new deliveries in 2023 with similarly elevated supply levels.

Apartment REITs: A Renter's Market

Arlington Asset Investment

Bluerock Homes Trust Inc

Americold Realty

Healthpeak Properties

Rates down, REITs up? Two years of persistent rate-driven pressure on residential and commercial real estate markets appears to finally be abating as the worst of pandemic-era inflationary pressures subside. This 'light-at-the-end-of-the-tunnel' comes as commercial property values were approaching the critical 20% drawdown level, a level that can result in cascading distress that extends beyond the weakest players. Not out of the woods, yet. Expectations of "Higher for Longer" are merely shifting to "High for Long" in which benchmark rates will remain materially above pre-pandemic levels into 2025.

Rates Down, REITs Up

Alpine Global Premier Properties Fund

Cambria Global Real Estate ETF

First Trust Alerian Disruptive

Xtrackers International Real Estate ETF

iShares International Developed Real Estate ETF

CBRE Global Real Estate Income Fund

Nuveen Real Asset Income & Growth Fund

iShares Global REIT ETF

REIT index performance can be a leading indicator for the asset class as a whole. Our latest Asset Allocation recorded a strong quarter for listed real estate, showing signs of long-awaited resurgence. REITs send encouraging signals. A deeper analysis of sectoral returns since the Great Financial Crisis reveals no clear pattern, vindicating broad sectoral exposure.

Listed Real Estate: Searching For Positive Signals While Reviewing The Case For REITs

Office Properties Income Trust

REITs averaged a -5.31% total return in October and have now fallen to a double-digit negative total return year to date (-10.46%). Large cap REITs (-2.24%) outperformed their smaller peers in October. Micro caps (-11.32%) extended their streak of severe underperformance. 26.80% of REIT securities had a positive total return in October with just 25.00% in the black year to date.

The State Of REITs: November 2023 Edition

Brookfield Asset Management

Major private equity groups are investing in the REIT sector. They are buying apartment REITs at 60-70 cents on the dollar. So am I and here's why.

I Am Buying Apartment REITs Hand Over Fist

Arbor Realty Trust

Gaming and Leisure Properties

Lument Finance Trust

U.S. equity markets extended their rebound to a third-straight week as benchmark interest rates dipped on economic data and corporate earnings reports showing a more distinct cooldown in economic activity. Gaining for a third-straight week and extending its rebound to nearly 10% since dipping into "correction territory" at the end of October, the S&P 500 gained another 2.4% this week. Lifted by the retreat in benchmark interest rates, real estate equities have roared back to life over the past three weeks. Equity REITs and Mortgage REITs each gained another 4.7%.

Disinflation Is Back

The S&P 500 has massively outperformed REITs in recent years. But we expect this outperformance to soon reverse. I explain why I expect REITs to easily beat the S&P 500 going forward.

Why REITs Will Likely Pummel The S&P 500

Hoya Capital Housing ETF

iShares U.S. Home Construction ETF

VanEck Mortgage REIT Income ETF

Direxion Daily Homebuilders & Supplies Bull 3X Shares

Invesco Dynamic Building & Construction ETF

iShares Mortgage Real Estate ETF

iShares Residential Real Estate ETF

IQ US Real Estate Small Cap ETF

Invesco S&P 500 Equal Weight Real Estate ETF

Global X SuperDividend REIT ETF

SPDR S&P Homebuilders ETF

Real Estate Select Sector SPDR Fund

DoubleLine Commercial Real Estate ETF

Invesco Real Assets ESG ETF

SPDR Dow Jones Global Real Estate ETF

SPDR Dow Jones International Real Estate ETF

Vanguard Global ex-U.S. Real Estate ETF

iShares International Developed Property ETF

The history of construction spending since 1993 reveals that this data tends to weaken prior to recessions. For a recent dip in Residential Construction attributed to the rise in mortgage rates, this indicator is charging higher.

Construction Spending Rises

Industrial Logistics Properties

Power REIT

REITs averaged a -7.14% total return in September and have fallen into the red year to date. Small cap REITs (-6.51%) outperformed yet again in September. Micro caps (-10.45%) continue to severely underperform their larger REIT peers. Only 9.74% of REIT securities had a positive total return in September with 34.38% in the black year to date.

The State Of REITs: October 2023 Edition

Why Warren Buffett And Charlie Munger Don't Like REITs But You Should

REITs are currently facing widespread dislike among investors. The negative sentiment towards REITs is due to the high-interest rates. I explain why I believe that most investors are misguided and highlight some opportunities to consider.

Urgent Warning To REIT Investors

First Industrial Realty Trust

Hersha Hospitality Trust Class A

OUTFRONT Media

The REIT sector gave up some of the gains achieved in June and July, with a -4.13% average total return in August. Small cap REITs (-2.49%) outperformed again in August. Micro caps (-13.08%) badly underperformed their larger REIT peers. Only 18.06% of REIT securities had a positive total return in August, with 48.13% in the black year to date.

The State Of REITs: September 2023 Edition

Amidst the bearish sentiment towards real estate, a compelling opportunity to own REITs has emerged. The deeply discounted REIT market has largely priced in the challenges for real estate of higher rates and tighter credit markets. Areas of concern for real estate - office properties or too much leverage - are well-contained in public REIT markets. REITs generally possess high-quality balance sheets and have minimal exposure to traditional office space.

Opportunities In Listed REITs Today

InnSuites Hospitality Trust

Strategic Residential & Apartment Real Estate ETF

Hoya Capital High Dividend Yield ETF

The REIT sector followed a strong June with further gains in July, averaging a solid +4.37% total return in July. Small-cap REITs (+5.23%) continued to outperform in July. Large caps (+2.46%) underperformed their smaller REIT peers for the 3rd straight month in July. 73.72% of REIT securities had a positive total return in July with 60.63% in the black year to date.

The State Of REITs: August 2023 Edition

News for US Diversified Real Estate ETF ETF (PPTY)