Hoya Capital High Dividend Yield ETF

RIET

Market cap $94.7M

REITs have underperformed since 2022 rate hikes, but Hoya Capital's David Auerbach says fundamentals are strong, especially among small and mid-cap names offering attractive yields. Interest rate sensitivity in REITs is often overstated.

RIET offers a diversified, high-yield real estate ETF with steady monthly distributions, appealing to income-focused investors. Performance has stabilized after past rate-driven declines; investors entering since 2023 have seen respectable total returns as rates stabilized. The fund's payout slightly exceeds its index yield, raising some caution about potential overdistribution, but yields should remain attractive even if trimmed.

U.S. equity markets notched another series of record highs this week, surging into the weekend after surprisingly dovish commentary from Federal Reserve Chair Powell, who hinted at imminent rate cuts. Powell used his final Jackson Hole speech as Fed Chair to deliver a clear policy pivot, an unexpected reversal after months of insistence that tariff-related inflation warranted a hawkish framework. Markets were equally relieved by the policy-focused nature of Powell's speech amid speculation that the address may be used instead as a potential defiant sermon on central bank independence.

U.S. equity markets fell sharply this week, while benchmark interest rates retreated to three-month lows, after revised employment data showed that job growth was far weaker than initially reported. The BLS payrolls report showed softer-than-expected hiring in July and the steepest two-month downward revisions to jobs growth since 2020, raising concern that the Fed may be "behind the curve." The downward revisions came days after Fed Chair Powell used it as the primary evidence for "solid" labor markets, which justified the FOMC's decision to keep rates in "restrictive" territory.

REITs were under pressure from a higher rate environment, but we've seen some recovery from the lows. I believe that there is still some further recovery that can take place, as REITs remain beaten down. Today, we are highlighting two ETFs that provide exposure to this area of the market and also provide a relatively higher distribution rate.

Hoya Capital High Dividend Yield ETF offers a diversified portfolio of mostly higher-yielding REITs, providing a stable, predictable monthly distribution with a level payout policy. Even though the fund focuses more on yield, they also incorporate diversification across different market capitalizations and industries within the space and limit each constituent's weighting. REITs were hit hard when the Fed was raising rates aggressively, which was shortly after RIET launched; however, RIET has since stabilized along with rates, and lower rates could benefit.

The Federal Reserve's path forward on interest rates remains highly uncertain. Interest rates have a huge impact on the importance of many high-yielding stocks. I share a 3-fund portfolio that should win, no matter what the Fed does.

The RIET portfolio includes high dividend-paying REITs across various sectors like homebuilders, residential, data centers, and industrial, with a monthly $0.085 dividend. The portfolio is rules-driven, aiming for diversification with no single stock exceeding 1.5% weighting, minimizing risk from individual dividend cuts. Key risks include rising interest rates and persistent inflation, which could impact the portfolio's performance.

In this edition of the ETF Prime podcast, host Nate Geraci welcomed VettaFi Senior Research Analyst Zeno Mercer to discuss AI, autonomous vehicles, and robots. The pair reacted to Tesla (TSLA) unveiling a new robo-taxi as well as the company's “Optimus” bot.

My investment strategy focuses on generating income from dividends and distributions, supplemented by writing covered calls and cash-secured puts. More broadly, I hold a mix of high-yield and dividend-growth investments, with the approach of both receiving high cash flow and seeing it grow over time as well. With my ETF approach, there are funds that fit both of these categories, some really "boring" names and then those that get more interesting in the "reaching-for-yield" category.