Question

A client is interested in investing in the real estate sector, but shows great concern about the possibility of depreciation within the sector and more specifically within certain geographic areas. What recommendation should an RR handling this client's account make in relation to achieving the HIGHEST amount of diversification in real estate-related investments?[A] The client should invest in securities issued by the Federal National Mortgage Association (FNMA).
[B] The client should invest in ETFs that are issued on a REIT index.
[C] The client should focus investments in one REIT.
[D] The client should invest in securities issued by the Government National Mortgage Association (GNMA).

Answer 1

Answer:

[B] The client should invest in ETFs that are issued on a REIT index.

Explanation:

ETF represents the Exchange Traded Funds basically these are part of Real Estate Investment Trusts, and these ensure the wide diversification in the investments.

The securities of FNMA and GNMA are more focused on the mortgage area, although these too also relate to the real estate sector, but as it focuses on mortgage returns it is not viable for diversification.

Thus, correct option is Statement B as ETF ensures diversification and then lower depreciation accordingly.