U.S. real estate ETF rally faces test with rate rise

Investors who have been piling into real estate exchange-traded funds over the past year could be in for a rocky ride if the Federal Reserve raises interest rates later this year as expected. The record $10.7 billion in new money invested last year in ETFs that focus on real estate investment trusts (REITs), coupled with the $1.2 billion added so far this year, have made these funds pricey: After several of the biggest ETFs returned north of 30 percent last year, the category has an average price-to-earnings ratio of 36.9, according to data from ETF.com. Vanguard declined to comment on REIT funds in particular, while BlackRock did not immediately comment. "The U.S. real estate market is still recovering, and that's why I like them at the moment because investing in REITs is like investing in U.S. real estate," said John Shearman of Sausalito, California-based IV Lions LLC, who invests in the Vanguard REIT ETF for his clients.

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