"We house our families in our homes, and we house our economy in commercial real estate,” says Michael Grupe, head of research at the National Association of Real Estate Investment Trusts (Nareit). “As the economy grows, the demand for commercial real estate space typically increases.” And that applies to ETFs that track publicly traded REITs, since real estate ETFs move in line with the broader economy and their peaks and troughs follow the business cycle.

As such, REIT ETFs enjoyed a strong start to 2012, but recent weeks have seen that performance deteriorate as the market declined. This has been worsened by the variety of economic factors that impact real estate ETFs, with office, industrial, retail and residential property often bound-up in a single product.

The FTSE Nareit All REITs Index, which includes all types of commercial properties, had a 2012 year-to-date total return (including dividends) of 9.02 percent on May 31, while the 50 more frequently traded REITs tracked by the FTSE Nareit Real Estate 50 Index had a total return of 8.54 percent. The iShares ETF FTSE Nareit Real Estate 50 Index Fund (NYSE: FTY) holding those same 50 REITs returned 8.31 percent for that period.

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