Since the so-called Taper Tantrum of 2013, real estate investment trusts (REITs) have been taking their cues from the Federal Reserve Board. Recall, the tantrum was when the market got spooked about the prospects of an abrupt withdrawal of Fed accommodation. Rates on the benchmark 10-year Treasury note shot up 135 basis points (82 percent) in just four months. (See Chart 2.)

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The tantrum kicked off a big sell-off in bonds and bond-like investments such as REITs. And now, with the recent spike in interest rates, real estate investors are again worried that trust prices will tumble.  By and large, those fears are justified. Four of the five top-performing REIT exchange traded funds swooned as Treasury rates ticked upward in April. One, however, actually gained ground. What accounted for the disparate performance? In two words: Global exposure.

Take a look at the top-tier REIT ETFs and how they fared against proxies for the S&P 500 Index (NYSE Arca: SPY) and the Barclays Aggregate Bond Index (NYSE: AGG) in Table 1.

iShares Residential Real Estate Capped ETF (NYSE Arca: REZ) – This smallish fund has been the standout performer over the past 12 months. Perhaps the reason is its diversification. The fund tracks the FTSE NAREIT All Residential Capped Index, which—despite its name—only devotes about half of its asset weight to residential REITs. An equal part of the index portfolio is given over to a combination of self-storage, health care and hotel trusts. Of the top five funds, REZ is the least influenced by the broad stock market represented by the SPDR S&P 500 ETF (NYSE Arca: SPY) and is the most closely correlated to the fixed income market tracked by the iShares Core U.S. Aggregate Bond ETF (NYSE Arca: AGG).

Masters Portfolio

iShares Cohen & Steers REIT ETF (NYSE Arca: ICF) – This fund used to be known as the Cohen & Steers Realty Masters portfolio. “Masters,” in that context, meant “majors” or big players. The fund’s underlying index is a narrow compendium of committee-selected trusts. ICF is definitely a large-cap portfolio, devoting 6o percent of its exposure to its top 10 names. Commercial REITs comprise half of the asset base, with the balance more or less split between residential and specialized trusts.