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This article will identify five of the best real estate ETFs and compare their respective pros and cons to one another.
Best Real Estate ETFs: Overview
Real estate ETFs serve as a frictionless investment vehicle to gain access to REITs. While there are trade-offs to owning a basket of REITs and other real estate based equities, the right real estate ETF can help diversify your portfolio.
Here are the five best real estate ETFs to buy in 2022:
- Vanguard Real Estate ETF (VNQ)
- iShares U.S. Real Estate ETF (IYR)
- Real Estate Select Sector SPDR Fund (XLRE)
- Global X SuperDividend REIT ETF (SRET)
- iShares Residential and Multisector Real Estate ETF (REZ)
Let’s analyze each of these funds in more detail.
Best Real Estate ETFs
#1. Vanguard Real Estate ETF (VNQ)
- 1-Year Trailing Performance: +12%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 2.96%
- AUM: $49 billion
- Number of Holdings: 165
The Vanguard Real Estate ETF (VNQ) invests in stocks issued by REITs, companies that purchase office buildings, hotels, and other real estate property.
The fund’s goal is to closely track an index called the MSCI US Investable Market Real Estate 25/50 Index, which looks for real estate stocks with the following characteristics: relatively inexpensive, small, rising, sound balance sheet, cash flow paid out, and low risk.
Vanguard throws some alpha on that index by adding their own institutional fund to the mix, the Vanguard Real Estate II Index Institutional Plus Shares (VRTPX), as this ETF’s largest holding.
VRTPX is an institutional fund with a minimum investment of $100M, so packaging it into the Vanguard Real Estate ETF gives the everyday-person access to it.
There are a variety of REITs in this ETF. Around 38% of the assets are invested in Specialized REITs, 15% in Residential REITs, 13% in Industrial REITs, 11% in Retail REITs, 7% in Health Care REITs, 7% in Office REITs, and 2% Hotel & Resort REITs.
Knowing the types of REITs in VNQ and their respective percentages is arguably as important as knowing the fund’s top holdings included below.
The remaining assets are spread across several real estate services, development, and/or operating companies.
VNQ Top Holdings:
- Vanguard Real Estate II Index Fund Institutional Plus Shares (VRTPX) 11.32%
- Prologie (PLD) 6.62%
- American Tower Corp. (AMT) 6.34%
- Crown Castle International Corp. (CCI) 4.42%
- Equinix (EQIX) 3.70%
#2. iShares U.S. Real Estate ETF (IYR)
- 1-Year Trailing Performance: +12%
- Expense Ratio: 0.41%
- Annual Dividend Yield: 1.69%
- AUM: $5.6 billion
- Number of Holdings: 88
The iShares U.S. Real Estate ETF provides exposure to U.S. real estate companies and REITs.
It has a nearly identical breakdown of REIT allocations as the previously mentioned Vanguard Real Estate ETF.
There are two noteworthy differences between the iShares and Vanguard funds: the top holding and expense ratio.
Vanguard’s top holding is its own institutional-grade real estate fund (which has similar holdings to the rest of VNQ), but iShares doesn’t do anything of the sort.
Then there’s the wide gap in expense ratios, where Vanguard charges 0.12% and iShares charges 0.41%, which is nearly a 3.5x difference.
Perhaps the difference in expense ratios is why more assets have flown into Vanguard’s real estate ETF compared to the one offered by iShares.
IYR Top Holdings:
- Prologis (PLD) 8.22%
- American Tower Corp. (AMT) 7.84%
- Crown Castle International (CCI) 5.50%
- Equinix (EQIX) 4.45%
- Public Storage (PSA) 4.12%
#3. Real Estate Select Sector SPDR Fund (XLRE)
- 1-Year Trailing Performance: +17%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 2.89%
- AUM: $6.0 billion
- Number of Holdings: 32
The Real Estate Select Sector SPDR Fund invests in the real estate sector of the S&P 500, thus offering precise exposure to REITs (excluding mortgage REITs) and various real estate management and development companies.
The Real Estate Select Sector SPDR Fund’s selling point is a higher concentration in individual stocks.
It invests in just 32 holdings compared to 167 and 88 from Vanguard and iShares, respectively.
It even has the same top holdings; it’s just more concentrated in those names.
For example, American Tower Corp. is the top stock in each fund but makes up 12% of XLRE compared to 7% in VNQ and IYR.
This fund had to do something to stand out, so it undercut iShares on fees and offered higher-risk, higher-reward potential than Vanguard.
XLRE Top Holdings:
- Prologis (PLD) 11.52%
- American Tower Corp. (AMT) 10.98%
- Crown Castle International (CCI) 7.71%
- Equinix (EQIX) 6.23%
- Public Storage (PSA) 5.77%
#4. Global X SuperDividend REIT ETF (SRET)
- 1-Year Trailing Performance: -10%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 6.29%
- AUM: $383 million
- Number of Holdings: 31
The Global X SuperDividend REIT ETF invests in 30 of the highest dividend-yielding REITs globally.
SRET makes monthly distributions, which is attractive to investors seeking regular income streams. The fund’s 12-month trailing yield is 6.29%.
SRET’s focus on finding yield results in a high allocation to Mortgage REITs, accounting for 40% of the fund.
Additionally, SRET chases yield all over the globe. Three-quarters of the fund invests in U.S. REITs, with the remaining 25% diversified across Canada, Australia, Singapore, and Mexico.
Global X believes that global exposure can help diversify both geographic and interest rate exposure.
This is fundamentally a different ETF with an entirely different objective compared to the previous three.
SRET Top Holdings:
- Ares Commercial Real Estate Corp. (ACRE) 3.84%
- W. P. Carey Inc (WPC) 3.84%
- Suntec Real Estate Investment Trust (T82U) 3.73%
- Charter Hall Long (CLW) 3.66%
- SmartCentres Real Estate Investment Trust (SRU.UT) 3.60%
#5. iShares Residential and Multisector Real Estate ETF (REZ)
- 1-Year Trailing Performance: +22%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 1.98%
- AUM: $1.3 billion
- Number of Holdings: 45
The iShares Residential and Multisector Real Estate ETF invests in a mixture of U.S. residential, health care, and self-storage real estate equities.
Over 50% of the fund is invested in Residential REITs, followed by 27% in Health Care REITs, and 22% in Specialized REITs.
The first three ETFs mentioned in this article offered just 15% to Residential REITs and 7% to Health Care REITs.
Investors seeking more exposure to those types of REITs might be interested in REZ.
REZ Top Holdings:
- Public Storage (PSA) 11.33%
- Welltower (WELL) 7.58%
- AvalonBay Communities (AVB) 6.37%
- Equity Residential (EQR) 6.12%
- Extra Space Storage (EXR) 5.16%
Other Real Estate ETFs to Consider
Here are some other real estate ETFs to consider if none of those did it for you:
- Schwab US REIt ETF (SCHH)
- iShares Cohen & Steers REIT ETF (ICF)
- iShares Core US REIT ETF (USRT)
- JPMorgan BetaBuilders MSCI US REIT ETF (BBRE)
- Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
- SPDR Dow Jones REIT ETF (RWR)
There’s no shortage of iShares real estate funds from Blackrock – that’s for sure.
However, Vanguard has over 3x as much AUM as Blackrock in the REIT vertical, and it only has one product compared to five from Blackrock.
Best Real Estate ETFs: Frequently Asked Questions
Are REIT ETFs a good investment?
REIT ETFs enable investors to gain real estate exposure in their portfolios without buying and maintaining physical real estate. REIT ETFs may be a good investment for those seeking exposure to hard assets during uncertain times.
What are the top 5 REITs?
Here are the top 5 publicly-traded REITs:
- American Tower (AMT)
- Crown Castle (CCI)
- Prologis (PLD)
- Simon Property Group (SPG)
- Equinix (EQIX)
Investors can gain access to dozens of publicly-traded REITs by purchasing a real estate ETF offered by Vanguard, Blackrock, or State Street, among others.
Which REIT is best to invest in?
The Vanguard Real Estate ETF (VNQ) is one of the best investment vehicles for those looking to invest in REIT. It provides access to several types of REITs in a single, low-cost fund.
Bottom Line: Best Real Estate ETFs
The best real estate ETF ultimately depends on the types of real estate you want to invest in.
But if you’re just looking for general exposure, we recommend the Vanguard Real Estate ETF.
This article is for informational purposes only, and it is not intended to be investment advice. Read our public equities research methodology to learn more about the ETFs we highlighted in this article. This article was updated on April 23th, 2022 to provide the most current data on each fund.
