Five years ago, people were capitalizing on appreciating home and real estate assets. Then the financial crisis threw a wrench into those plans. But lately the worst appears to be over, as a variety of economic data show improvement.

However, investors still face bond yields stubbornly stuck at historical lows and interest rates that will likely be depressed until mid-2015. Given those stats, advisors are looking to other forms of investments that offer any slight chance of decent yields.

For that reason, real estate investment trusts have attracted their fair share of market interest, especially those in exchange-traded portfolios.

REITs In Action
Real estate investment trusts primarily generate revenue through rent collected on properties. The companies then pay out a hefty chunk of their net income to shareholders through dividends in order to qualify for federal tax breaks.

By pooling the assets, REITs reduce risk and provide greater diversification, since the capital is distributed through numerous properties. Investors trying to mimic such a strategy on their own would have to acquire multiple properties, which is rather time consuming and probably impractical.

REITs have recently benefited from a steady increase in office, retail and apartment rent prices and the recruitment of additional tenants. And the sector should continue to show strength, as long as job growth can support the higher rents and tenant demand.

A Caveat
The largest risk investors face is the REITs' ability (or inability) to collect rent. If the commercial side of the market weakens, over time it could weaken REIT yields to the point that shareholders no longer find them of value. The sector is especially sensitive to the economic environment-to changes in GDP, corporate profits and consumer confidence-and most of these factors hinge on the well-being of the job market.

That's important because economists don't expect job growth to quickly pick up anytime soon. The recovery in both U.S. and Europe remains uncertain, despite investors' optimism that governments could step in and help.

The sector might also be sensitive to increasing interest rates, which will inevitably rise from their current lows. As the rates increase, REITs could experience higher costs in capital, diminished cash flows and depressed asset values. Still, the Federal Reserve has decided to leave rates alone until 2015, so there is no immediate concern.

Gaining Exposure Through ETFs
REITs already give investors a diversified portfolio of real properties and trade like stocks. But investors can further diversify by tapping the market through exchange-traded funds, adding another layer of diversification. Some funds give investors exposure to a broad swath of various REIT sub-sectors while others focus on specific areas.

The largest REIT ETF is the Vanguard REIT Sector ETF (VNQ), with $14.9 billion in assets and 111 holdings. The fund has an expense ratio of 0.10% and a 3.24% yield. It offers exposure to a range of REIT sectors, such as industrial properties and office buildings, residential properties, hotels and other real estate (it does not include exposure to mortgage REITs).

The second-largest ETF is the iShares Dow Jones U.S. Real Estate Index Fund (IYR), with $4.6 billion in assets and 85 holdings. This fund comes with a 0.47% expense ratio and a 3.4% yield. It is similar to other broad REIT ETFs like Vanguard's, but includes exposure to the U.S. mortgage REIT market.

Still, for advisors more interested in target exposure, there are a number of ETFs that hone in on specific segments of the real estate market. For example, the Market Vectors Mortgage REIT ETF (MORT) tracks companies that purchase or service commercial or residential mortgage loans or other mortgage-related securities. The ETF has a 0.40% expense ratio and an impressive 9.68% yield. However, the fund is concentrated, with significant exposure to two companies, Annaly Capital (NLY) at 18.8% and American Capital Agency (AGNC) at 15.3%.

The iShares FTSE NAREIT Mortgage Plus Capped Index Fund (REM) also follows residential and commercial mortgage REITs. The fund has an expense ratio of 0.48% and provides an attractive 11.28% yield. But this one is also top heavy, with 19.5% allocated to NLY and 18.5% to AGNC.

Mortgage REITs account for around 10% of REIT investments. If interest rates increase, they could decrease mortgage REIT book values, and future financing would be more expensive. But that is not much of a problem now.

Currently, the commercial mortgage-backed securities (CMBS) market is showing a remarkable recovery. Rising rental rates in key markets, the reinvigorated capital markets and a promise that interest rates will remain at record lows have all helped support the CMBS market. With interest rates at their low levels, many companies are jumping at the opportunity to refinance their debt, which will translate to greater earnings.

Other Sectors
Office REITs invest in office buildings and receive rental income on long-term leases, and advisors should be wary that the state of the economy, the unemployment rate, vacancy rates and capital are all deciding factors in this sub-sector.

Those interested in this market might consider the iShares FTSE NAREIT Industrial/Office Capped Index Fund (FNIO), which allocates 62.5% to office space, 25.6% to industrials and 11.7% to a mix of other types of real estate. The fund has a 0.48% expense ratio and a 2.99% yield. But it is concentrated as well, heavily tilted toward Boston Properties (BXP) at 19.0% of holdings and Prologis (PLD) at 18.5%.

Advisors more inclined toward the residentials may opt for something like the iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ). This fund comes with a 0.48% expense ratio and a 2.90% yield. The majority of its holdings, 47.6%, are in apartment properties, but the fund also allocates a significant amount to health care at 34.1% and self-storage facilities at 14.7%.

The iShares FTSE NAREIT Retail Capped Index Fund (RTL) primarily tracks companies offering financing to shopping malls, which account for 48.9% of the portfolio, and other retail centers, which make up 39.1%. Simon Property Group (SPG) is this ETF's largest single holding at 22.0%.

Internationals
Alternatively, advisors seeking more international exposure could take a look at international REIT ETFs.

The SPDR Dow Jones International Real Estate ETF (RWX), with $3.2 billion in assets, is the largest ETF offering access to foreign REITs outside the U.S. Its top country allocations include Australia (10.1%), Japan (17.7%) and the U.K. (12.8%). The fund comes with a 0.59% expense ratio and a 3.77% yield.

If you would rather have a one-stop shop, the SPDR Dow Jones Global Real Estate ETF (RWO) offers global REIT exposure. But the underlying index is based on market capitalization, and the U.S. makes up 55.2%, since most of the largest REITs are here. That allocation is followed by Australia's 8.0% and Japan's 7.8%. The fund has a 0.50% expense ratio and a 2.84% yield.

The Federal Reserve's efforts to help the U.S. economy chug along have dragged down yields on Treasurys, which have essentially dried up yields in the market. However, advisors who are still seeking income-generating options should consider real estate investment trust ETFs as an excellent addition to a well-rounded investment portfolio.

Tom Lydon is editor and publisher of ETF Trends, a Web site with daily news and commentary about the fast-changing trends in the exchange-traded fund (ETF) industry. Lydon is also president of Global Trends Investments, an investment advisory firm specializing in the creation of customized portfolios for high-net-worth individuals. Read the disclaimer: Tom Lydon is a board member of Rydex|SGI.