REITs are real estate investment trusts comprised of companies that have a direct involvement in the ownership, financing of or management of the operations of real estate holdings. The Dow Jones Index provides information and tracking of these publicly traded shares to provide investors with trends in performance details. The Index doesn’t necessarily rank the performance of the REITs but it does provide useful information for accomplishing this goal. To better understand the Dow Jones REIT Index and how it is determined, we offer an overview of the purpose and ranking process for selection of the publicly traded REITs.
The purpose of the Dow Jones REIT Index
An Index is a listing of stocks that have been classified under a certain category. It must adhere to the established requirements to qualify as an REIT. You can think of an index as a list or a group that is closely related by one common feature or several. The Dow Jones REIT Index serves the purpose of measuring publicly traded REIT performance along with similar securities. It is considered to be a subindex of the Dow Jones Global Select Real Estate Securities Index. Measurements of globally traded REITs and real estate operating companies are included. The focus of these measurements is limited to companies driven by real estate value factors and those that are driven by other factors are excluded from the index. It is real estate specific.
How is the Dow Jones REIT Index determined?
Companies that are classified as real estate investment trusts with a focus upon real estate, not driven by other values are examined. This is to ensure that your investment is focused upon the real estate market instead of some hidden objectives that are not related specifically to real estate. This process includes the examination of companies through the mandatory disclosures as described in the SEC regulations for providing a range of information about the purpose of the company and its holdings. Companies that have filed for an IPO to be included in the national stock market exchange are required by law to maintain transparency and submit a wide range of facts about the purpose and operations of the business.This is her main difference between publicly traded REITs and private REITs which are far less regulated.
The SPDR Down Jones REIT ETF
This investment classification is a non-diversified fund which invests all assets in the securities that make up the index with a caveat that at least 80% of investments are made in the REIT index. The investment provides results prior to fees and expenses on investments in correspondence to the total return performance of the Dow Jones U.S. Select REIT index.
Useful information that the Dow Jones REIT Index provides
The information provided by the Down Jones REIT Index is useful in gathering information about the daily performance of shares that are categorized as an REIT. This allows individuals and organizations to compare performance measures to identify current status, past performance, and trends with regard to the REIT. It’s useful for creating a ranking of each ETF for investment or tracking purposes. A breakdown of the components measured include:
The costs include price of shares and brokerage fees for purchasing and trading the shares.
When dealing with publicly traded stocks, the tracking error is important for determining the measurement of risk by adding this investment to your portfolio. This is what the tracking error can tell you. This data indicates the risk of an investment portfolio in Correlation to active management decisions that are made by the manager of the portfolio and it shows how much a portfolio aligns with the index to which it is assigned.
The bid/ask ratio shows the details of how much the ask price of a share goes above the bid price for an asset that is included in the market. It’s the difference between the highest price per share a buyer is willing to pay for the stock and the lowest price that the company selling the stock is willing to accept. To further simplify this, it’s a matter of the highest the stock prices go and the lowest they’ve been over specific periods of time.
REITs are an asset class and the REITs are not always associated to stocks so they offer a degree of portfolio diversification. The rationale for diversification of a portfolio is because various holdings/assets react differently to specific events that occur within the stock market. It helps to minimize the risks associated with the overall investment portfolio.
To summarize a process that can seem complex, the Dow Jones Index is determined by considering the purpose and activities of a company to ensure that they meet the requirements for inclusion as a publicly traded REIT. This involves an analysis of the information that is supplied as a requirement of the SEC. Most or all of the focus driving the company must involve ownership, management of or financing of real estate related ventures. All Dow Jones Indexed REITs meet a specific criteria in order to qualify. The Index is offered to provide investors with solid information about these stocks that indicate their performance on a daily basis as well as indicating historical trends and patterns in performance.
The index is used by individuals and organization to rank the risks associated with each company and it is helpful in making recommendations to investors about the risks and potential benefits involved. The Dow Jones REIT Index saves a lot of time and effort that would otherwise be spent by analysts or investors who are looking for real estate specific investments. It provides all of the necessary information for determining the risk, diversification indications and all of the historical data about a real estate related stock that is necessary to make an informed decision about whether or not to invest in a particular REIT.