Best REIT ETFs: Top Real Estate Funds For Investors
By owning REITs, investors earn some of the profits without having to buy, manage, or finance any physical property. In addition, market participants have historically preferred real estate because of their diversification properties, as these investments have a low correlation to stocks or bonds.
REIT investors carefully examine dividend yields, as dividends are the main motivation for investing in these assets. The dividend yield is given as a percentage and is calculated from the annual dividend payment divided by the share price.
In general, the type of assets a REIT ETF owns determines the risk profile of the fund and the dividend payout.
Before investing in a REIT ETF, you should read the fund’s prospectus to understand its investment strategy and the portfolios it holds.
Top REIT ETFs
Below are some of the most popular REIT ETFs on the market. (Data as of June 15, 2021)
Vanguard Real Estate ETF (VNQ)
VNQ is the most popular REIT ETF. The Fund tracks an index of companies that own and operate real estate in the United States.
Fund issuer: Vanguard
Five-year annual return: 8.6 percent
Dividend yield: 3.21 percent
Expense ratio: 0.12 percent
Assets Under Management: ~ $ 42 billion
iShares US Real Estate ETF (IYR)
IYR is one of the oldest REIT ETFs out there. Similar to the VNQ, the fund tracks an index of US companies that are directly or indirectly active in the real estate sector.
Fund issuer: BlackRock
Five-year annual return: 9 percent
Dividend yield: 2.49 percent
Expense ratio: 0.42 percent
Assets Under Management: ~ $ 7 billion
Real Estate Sector Sector Fund (XLRE)
XLRE represents one of the core sectors that make up the S&P 500 index. The fund invests in large cap real estate companies operating in the United States.
Fund issuer: State Street Global Advisors
Five-year annual return: 11 percent
Dividend yield: 3.39 percent
Expense ratio: 0.12 percent
Assets Under Management: ~ $ 3 billion
iShares Global REIT-ETF (REET)
REET tracks a global index of real estate companies operating in emerging and developed markets, including the United States.
Fund issuer: BlackRock
Five-year annual return: 6 percent
Dividend yield: 2.28 percent
Expense ratio: 0.14 percent
Assets Under Management: ~ $ 3 billion
JPMorgan BetaBuilders MSCI US REIT ETF (BBRE)
BBRE tracks an index of small, mid and large cap companies, primarily in commercial and specialist real estate in the United States.
Fund issuer: JPM
Five-year annual return: N / A (The fund launched in 2018)
Dividend yield: 3.95 percent
Expense ratio: 0.11 percent
Assets Under Management: ~ $ 1.5 billion
What are REITs?
REITs invest in a variety of real estate such as apartments, office buildings, hospitals, data centers, hotels, retail stores, etc. The group also includes the companies that support these activities, such as financial lenders and management companies.
Some REITs specialize in certain areas of the market, such as mortgage finance, while others are diversified across the real estate market. The REIT’s risk profile depends on the assets it holds.
In order to qualify as a REIT, a company must meet certain requirements. One of these provisions stipulates that the company must distribute at least 90 percent of its taxable income to shareholders in the form of dividends.
Most REITs fall into three categories: stocks, mortgages, and hybrids.
Advantages and disadvantages of investing in REIT ETFs
REIT ETFs provide dividend investors with a reliable stream of passive income without having to worry about owning or managing a property. Additionally, these funds are very liquid, so you can get your capital back anytime – something that is not easy to achieve with physical real estate. In addition, REITs serve as a diversification tool in your portfolio as they are less correlated with other asset classes such as stocks.
REITs, on the other hand, tend to be more volatile and prone to quick losses, a trait that is less noticeable in physical real estate. In addition, since REITs have to return 90 percent of their income to investors, they have fewer funds available to take advantage of other investment opportunities. Also, dividends from REITs are often taxed as regular income.
Despite these drawbacks, research by Nareit, a REIT organization, shows that total returns from REITs have outperformed the Russell 1,000 large-cap index by 2 percent (10.7 percent versus 8.7 percent) over the past 20 years.
How to invest in REIT ETFs
A solid dividend strategy is an essential part of any investor’s portfolio. And when dividends are reinvested, the returns can be even higher.
When selecting REIT ETFs, the following four steps must be taken into account:
1. Determine your financial goals
The type of investment you choose depends on what you want to achieve. For example, someone about to retire should take a more conservative approach to investing. So always let your financial goals guide your decisions.
2. Research REIT Fund
When choosing REIT ETFs, pay attention to factors such as dividend history, dividend yield, fund performance, expense ratio, top stocks and assets under management. Investors can find this information in the prospectus for a fund.
3. Outline your asset mix
Before investing, take stock of what you own and how you plan to divide your wealth. Remember the key is to stay diversified.
4. Know what you own
By regularly reviewing your investments, you can take control of your finances and make any necessary adjustments. Use all of your broker’s free resources, such as: For example, meet with a financial planner and always ask questions. Ultimately, there is no such thing as a hands-off investment.
Like any other investment, REIT ETFs are prone to losses. However, the level of potential losses depends on the level of risk contained in the portfolio. A fund that invests heavily in potentially riskier assets such as real estate companies with high leverage has a very different risk profile than a fund that invests in established, trusted names.
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Editorial disclaimer: We recommend that all investors conduct their own independent research on investment strategies before making an investment decision. In addition, investors are advised that the past performance of investment products is no guarantee of future price increases.