REIT ETFs average a 4.5% yield. That equity income is a big draw for investors at a time when bond rates are mired at historic lows. But Kevin Mahn, president of Hennion & Walsh Asset Management, likes them just as much for their growth potential and relatively low correlation with stocks and bonds.

“REITs continue to fly under the radar” of many investors, Mahn told IBD in a phone interview. VNQ has jumped 17% on the stock market so far in 2016 vs. a 7% gain for SPDR S&P 500 (SPY).

Mahn maintains a small allocation to REITs in client portfolios and is bullish on the sector. “REITs have historically shown they can fare well, even in the face of rising interest rates,” he said.

The fear of rising rates was a headwind for the sector in 2015. But Mahn noted that higher rates driven by economic growth and job growth can be a plus. When people have more money to spend, retail REITs like Simon benefit. When more Americans are working, and earning more, health care REITs like Welltower gain.

Equity And Mortgage REITs

Mahn invests in REITs for both attractive income and “good, strong total return characteristics.” CoreSite Realty (COR), a highly rated IBD stock, has jumped 74% over the past year on the back of consistent profit and sales growth. The REIT operates nationwide data centers — a booming business as companies migrate key operations to the cloud. CoreSite releases its Q2 results Thursday.

When choosing an ETF, Mahn looks first for “an index that is recognized and established.” Vanguard REIT, iShares U.S. Real Estate (IYR) and SPDR Dow Jones REIT (RWR) are among the funds that make that cut.

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