REITs have become increasingly popular over the years as investors continue to search for yield in the current ultra-low rate environment. Given this huge demand from investors, issuers are lining up with products to quench their thirst.

Following the trend, Fidelity recently filed a product focused on the REIT space. Though the issuer has not as yet disclosed some of the key details like expense ratio and ticker symbol, we have highlighted those details that were available.

Fidelity MSCI Real Estate Index ETF in Focus

As per the SEC filing. the proposed ETF looks to track the performance of MSCI USA IMI Real Estate Index, before fees and expenses. The index will track real estate investment trusts (REITs), which generate a majority of their revenues and income from real estate rental and leasing operations.

The index provides exposure to companies that own, operate and develop real estate properties, including offices, hotels, malls, shopping centers, data centers, industrial properties, apartment buildings, and other real estate properties. It also includes REITs that make construction or mortgage loans.

The fund, if approved, might also invest its assets in futures, options and swaps (read : A Comprehensive Guide to REIT ETFs ).

How Does it Fit in a Portfolio?

REITs are an intriguing choice for investors looking for yields in the current environment of ultra-low rates. In addition to paying out solid dividends, REITs provide excellent capital appreciation over the longer term. This is especially true as REITs are required to distribute at least 90% of their annual taxable income to shareholders annually in the form of dividends.

Moreover, REITs add diversification benefits to the portfolio and also act as an inflation hedge. Also, with a gradually improving economy and the prevailing low interest rate, the outlook for the REIT industry is expected to remain strong going forward (read: REIT ETFs for Income and Diversification ).

ETF Competition

The fund if approved is expected to face competition from some of the top players in the REIT space. Vanguard REIT ETF  ( VNQ ) with an asset base of $25.9 billion is the most popular product in this space. The fund tracks the MSCI US REIT to provide exposure to 138 stocks, having the highest allocation to Retail REITs (26%), followed by Residential REITs (16%) and Healthcare and Office REITs (13% each).

The fund is quite cheap with just 10 basis points as fees and has a solid dividend yield of 3.57% (see all Real Estate ETFs here ).

Apart from this, iShares Dow Jones US Real Estate Index Fund ( IYR ), iShares Cohen & Steers Realty Majors Index Fund ( ICF ) and SPDR Dow Jones REIT ETF ( RWR ) are some of the other ETFs in the space. IYR charges 46 basis points as fees, ICF 35 basis points and RWR charges 25 basis points. IYR has a dividend yield of 3.45%, ICF offers 2.86%, while RWR has 2.92%.

Given the competition in the space, the success of the fund will depend on the fees it charges and the dividend yield it offers.

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