Investors in New York City, New York may have been tempted by the allure of high yields with the Global X SuperDividend REIT ETF (SRET) back in June of last year. However, a deeper look into the investment reveals potential pitfalls associated with blindly chasing yields without proper due diligence.
Despite a chunky monthly payout that has somewhat cushioned the fund’s price erosion, concerns arise regarding the fund’s performance in the event of a recession. The fund’s focus on the 30 highest-yielding REITs worldwide, following the Solactive Global SuperDividend REIT Index, may not guarantee optimal returns, especially with an expense ratio of 0.59%.
The fund’s heavy exposure to mortgage REITs, accounting for nearly 40% of its holdings, raises red flags for some investors. While the strategy of targeting high yields can be enticing, it also comes with risks, especially when delving into volatile sectors without a thorough understanding of the underlying fundamentals.
With holdings like Rithm Capital Corp., Ladder Capital Corp., Dynex Capital Inc., and Annaly Capital Management among its top positions, the fund’s performance is closely tied to the mortgage REIT sector’s overall stability. However, historical data suggests that focusing solely on high yields may not always translate to positive total returns.
Looking ahead, the fund’s increasing exposure to senior housing and nursing care REITs like Sabra Health Care REIT, National Health Investors Inc., Omega Healthcare, and LTC Properties Inc. signals a shift towards safer investments with historically higher yields. Yet, the fund’s track record of chasing yields without considering key metrics like credit ratings and dividend sustainability raises concerns among more risk-averse investors.
In light of the fund’s current portfolio composition and potential risks associated with its investment strategy, analysts suggest caution for investors considering the Global X SuperDividend REIT ETF. As market conditions evolve, the fund’s performance in the coming months may provide further insight into the effectiveness of its yield-chasing approach.
