This level of change was unprecedented in the 200 years old history of industrialization and resulted in millions of square feet of prime office space suddenly becoming useless as cohorts transformed working habits in order to reduce Covid infection risks. Going a step further, government departments, as well as companies from Microsoft (MSFT) to Google (GOOG), extended the time period their employees could work remotely to more of a hybrid mode due to Covid variants.
WFH, Vaccination Efficiency and REITs
However, while WFH has helped to reduce costs, its contribution to productivity remains debatable, and with higher vaccination rates in 2022, the return to office momentum could be accelerated. This should in turn benefit office REITs or Real Estate Investment Trusts.
With 16.81% real estate exposure, the SPDR S&P 500 (SPYD), is a high dividend yield ETF. It also includes 19% of financials, a positive in a rising rate environment which should be favorable to banks. On the other hand, the ETF also has some exposure to IT, which depending on the valuations of the individual holdings, is currently suffering from a rotation away from technology names.
However, the fact that this exposure is limited to 5.75% still makes SPYD a more appealing choice when compared to the Vanguard High Dividend Yield ETF (VYM), for example, which includes 8% of technology stocks as part of its holdings. Additionally, the Vanguard ETF does not include any REIT stock as part of holdings.
I also like the SPDR ETF as it pays higher dividends, at a yield of 3.54% compared to its peer’s 2.74%.
Best REIT ETFs
Scanning the industry, in order to fully benefit from a return to office one can also choose the SPDR Dow Jones REIT ETF (RWR) or the highly popular Vanguard Real Estate ETF (VNQ), but, given future uncertainty as to the possibility of Covid variants impacting a full resumption of office work together with the diversification rationale, it is better to opt for an ETF with partial exposure to REITs like SPY. For this purpose, it follows the S&P 500 High Dividend Index and carries an expense ratio of just 0.07%.
In addition to providing higher quarterly income, SPYD, with a gain of 28.21%, has outperformed the broader market (S&P 500) by more than 5% in the last year. This outperformance has even been more pronounced during the last one month at more than 7% (6.82% minus -0.24%) as shown in the red and blue charts below, and should continue as investors pour more money on the cyclical sectors like Consumer Staples and Energy to bank on the economic recovery, at the expense of tech.
To further make my point about SPYD benefiting from REITs and being less exposed to tech is its superior one-month performance compared to VYM’s 4.28% as shown in the orange chart above.
Finally, SPYD forms part of a list of ten high-yield ETFs for income-minded investors computed by Kiplinger, aiming for balancing risks and rewards in the quest for better-than-average yields.
Disclosure: I am long SPYD.