The fund's expense ratio is 0.60 percent.
Yield Play, Price Appreciation . . . And Credit Risk
Part of the appeal of net-lease REITs, according to fund literature, is that they don’t have exposure to multi-tenant properties that typically have significant capital expenditures and operating expense obligations for property owners such as property taxes, insurance and maintenance.
Instead, net-lease REITs get consistent rental income without the responsibility for managing the property or paying expenses on it. And lease terms of 10 years or more provide predictable income.
For REITs, that income translates into sizable yields that appeal to income investors, which is the target market for the NETL fund.
“Historically, REITs in the net-lease space have delivered yields in the range of 5-plus percent, with the opportunity for capital appreciation, Panagiotakopoulos says.
Looking at the NETL fund’s top three holdings, Vereit Inc. sports a forward dividend yield of 6.5 percent, W.P. Carey Inc. is at 5.3 percent and Realty Income Corp. (with the intriguing ticker symbol “O”) is on the lower end at 3.7 percent, according to Morningstar.
Of course, all REITs can be impacted by the vicissitudes of the economy.
“It’s like with any REIT, if a company goes bankrupt and stops paying rent the property becomes vacant and there’s no income from the property, which means less money for the REIT to pay a dividend,” Panagiotakopoulos says.
In the case of net-lease REITS, he notes that corporate credit is the biggest potential risk. Sixty-three percent of the top 100 tenants (based on rental revenue) of the publicly traded net-lease REITS have debt rated by national rating agencies. Of that group, a little more than half have debt that’s non-investment grade, which means it's lower on the bond spectrum.