Investing in REIT ETFs | The Motley Fool

Real estate is a great vehicle for increasing wealth. According to Forbes, real estate was the primary vehicle for wealth creation for 215 of the world’s 2,755 billionaires. Meanwhile, it has helped countless millionaires amass and grow their fortunes.

Real estate investments aren’t just for the rich, however. Thanks to the congress, anyone can invest in high net worth commercial real estate through Real Estate Investment Trusts (REITs). And the financial services industry has made it even easier to invest in a diversified portfolio of commercial real estate by holding several exchange traded funds (ETFs) geared towards the sector.

Here’s a closer look at how these two investment vehicles can be combined for an easy entry into real estate investing.

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Image source: Getty Images.

Top REIT ETFs

Congress created REITs in 1960 to enable the average investor to participate in the wealth accumulation ability of cash flow commercial real estate. These companies own pools of rental properties or real estate-backed loans that generate rental or interest income that REITs have. to distribute to their shareholders Dividend payments. REITs require less labor and capital than buying a property. They are also less risky, high fluid, and have strong past performance against the S&P 500.

However, with more than 200 publicly traded REITs focused on a dozen real estate sectors, it can be difficult for beginners to know where to start. This is where ETFs can help. These companies hold multiple REITs and other real estate stocks, which gives investors wide exposure to the sector. Some of the best options for real estate ETFs are:

Top REIT ETFs

Ticker symbol

Performance (total return) over the past 12 months

Starting time

Exhibitors

Assets under Management (AUM)

Vanguard real estate ETF

(NYSEMKT: VNQ)

30.5%

09/23/2004

The Vanguard Group

$ 83.3 billion

iShares US real estate ETF

(NEWS: IYR)

28.1%

06/12/2000

BlackRock (NYSE: BLK)

$ 7.3 billion

Schwab US REIT ETF

(NYSEMKT: SCHH)

29%

13/01/2011

Charles Schwab (NYSE: SCHW)

$ 6.2 billion

Real Estate Select SPDR Fund

(NEW: XLRE)

27.7%

07/10/2015

SSGA Funds Management, Inc.

$ 4.3 billion

iShares Cohen & Steers REIT-ETF

(NYSEMKT: ICF)

27.3%

01/29/2001

BlackRock

$ 2.4 billion

Data source: company websites and YCharts. Performance and AUM data as of October 3, 2021.

Here’s a closer look at these top REIT ETFs.

Vanguard real estate ETF

The Vanguard Real Estate ETF is a giant among REIT ETFs, with more than 10 times the assets under management of its closest competitor. He invests in REITs and other real estate stocks. At the end of August 2021, the ETF held 171 stocks, led by the following five:

  1. Vanguard Real Estate II Index Fund: 11.5% of the portfolio.
  2. American tower (NYSE: AMT): 7.5%.
  3. Prologis (NYSE: PLD): 5.6%.
  4. Crown Castle International (NYSE: CCI): 4.7%.
  5. Equinix (NASDAQ: EQIX): 4.2%.

This broad REIT ETF offers investors two forms of diversification. Of its 170+ stocks, the largest holding is a related REIT index that holds 169 REITs and real estate stocks. The top 10 holdings now include the largest REITs from Market capitalization. In total, the 10 largest holdings make up 45.6% of the portfolio. As a result, the ETF offers broad exposure across the REIT sector with a focus on the largest REITs that dominate the industry.

One factor that sets the Vanguard Real Estate ETF apart is its ETF expense ratio. At 0.12%, it is more than 50% below the industry average of 0.28%. This allows investors to keep more of their returns, which has helped this ETF outperform others focused on REITs over the past year.

iShares US real estate ETF

The iShares US Real Estate ETF invests in domestic real estate stocks and REITs. This ETF had 83 holdings at the end of 2021, led by the following five:

  1. American Tower: 8.9%
  2. Prologis: 6.4%.
  3. Crown lock: 6.1%.
  4. Equinix: 4.6%.
  5. Public storage (NYSE: PSA): 3.4%.

These are the five largest REITs and operate in a variety of property types including industrial, communications infrastructure, data centers and self storage. Overall, the ETF’s 10 largest holdings make up 43.2% of its portfolio, which gives investors slightly less diversification than Vanguard’s ETF as it owns half of the stocks.

One of the downsides to this REIT ETF is its expense ratio. At 0.42%, it is well above the industry average. Because of this, it has slightly outperformed its benchmark over the years as the higher fee has cost its returns.

Schwab US REIT ETF

This ETF offers easy access to REITs as it only holds these units, unlike other ETFs that have non-REIT real estate stocks in their portfolio. At the end of 2021, there were 141 REITs in the fund, led by the following five:

  1. American Tower: 8.8%
  2. Prologis: 6.3%.
  3. Crown lock: 6%.
  4. Equinix: 4.6%.
  5. Public storage: 3.3%.

Like many other REIT ETFs, the Schwab US REIT also holds ETF REITs based on theirs Market capitalization instead of a balance system. This means that it has almost identical top portfolios to most other REIT ETFs. His top 10 now make up 42.3% of his portfolio.

Its expense ratio stands out. It’s an extremely low value of 0.07%, allowing investors to keep more of the returns from the underlying REITs.

Real Estate Select SPDR Fund

The Real Estate Select SPDR Fund enables investors to invest in real estate more directly. This ETF only holds REITs in the S&P 500 indexwhich limits its investment pool. At the end of 2021, this ETF only held 29 REITs, led by a few well-known names:

  1. American Tower: 12.8%
  2. Prologis: 9.8%.
  3. Crown lock: 7.9%.
  4. Equinix: 7.5%.
  5. Public storage: 4.8%.

As the top five REITs, it’s no surprise that this group leads the way. Since this ETF only focuses on REITs in the S&P 500, its top 10 holdings made up 62.7% of its portfolio. This makes it an ideal option for investors looking to focus on the largest REITs.

This ETF has a low expense ratio of 0.12%. As a result, it’s a solid option for investors looking for low-cost exposure to the largest REITs.

iShares Cohen & Steers REIT-ETF

The iShares Cohen & Steers REIT ETF is another REIT ETF managed by BlackRock. Investing in REITs takes a slightly different approach. This ETF focuses on holding large real estate companies that are dominant in their respective property categories. It thus has a concentrated portfolio of 30 REITs.

However, these 30 include some well-known names, led by:

  1. Equinix: 8.4%.
  2. American Tower: 8.2%
  3. Crown lock: 8%.
  4. Prologis: 7.8%.
  5. Public storage: 5.5%.

Overall, the top 10 holdings made up 60.4% of the portfolio at the end of 2021.

Because this ETF takes a more active approach to investing in REITs, it charges a relatively higher expense ratio of 0.34%. It’s best for investors who want to focus on the dominant REITs without limiting themselves to just those in the S&P 500.

These ETFs make it easy to invest in REITs

REITs have historically generated attractive total returns for investors by giving them above average returns Dividend income and price increase. ETFs meanwhile make it easy to invest in the sector by offering investors broad exposure to the leading REITs. While most REIT ETFs have similar holdings, all of the top ETFs have their own unique spin that gives investors several excellent options.