REIT ETFs provide a low-cost option.
Real estate investment trusts offer the primary benefits of real estate investing — diversification, dividend income and an inflationary hedge — without the responsibilities of owning and managing property. REIT exchange-traded funds, which trade like a stock, offer an entry point to multiple real estate sectors in a single cost- and tax-efficient package. Meir Barak, chairman and head trader at day trading academy Tradenet, says REITs area good way to beat home bias, as these assets can allow for a wider geographic reach. “With a REIT ETF, you can be exposed to an entire country’s real estate sector without leaving the house,” he says. Here are seven REIT ETFs to consider right now.
Vanguard Real Estate ETF (ticker: VNQ)
Vanguard’s reputation for high-quality investments is well known. Bankrate investing and wealth management expert James Royal says VNQ is a solid pick for anyone seeking broad exposure across the REIT industry. “With more than 190 stocks in the fund, VNQ provides a piece of everything,” Royal says, “But some of its largest positions are in the fast-growing subsector of tower REITs, which own the cell towers that enable mobile devices.” The ETF is cost-friendly, with an expense ratio of 0.12 percent and rates a four out of five on Vanguard’s risk scale, meaning it’s a higher risk choice with the potential for greater returns.
iShares Global REIT ETF (REET)
While some REIT ETFs focus exclusively on domestic holdings, REET targets developed and emerging markets as well as the U.S. More than half of the ETF’s holdings are U.S.-based but other represented countries include the U.K., Australia, Japan and France. Since its inception in July 2014, the ETF has delivered a cumulative return of 15.1 percent through the end of 2018. The current expense ratio is 0.14 percent, only slightly higher than VNQ. The 30-day SEC yield, which reflects interest earned after fund expenses are deducted for the most recent 30-day period, was 3.66 percent as of Jan. 31.
Invesco China Real Estate ETF (TAO)
TAO is based on the AlphaShares China Real Estate Index, which tracks the performance of publicly traded companies and REITs in China, Hong Kong and Macao.The ETF has an impressive dividend yield of 6.79 percent and year to date, has notched a total return surpassing the S&P 500. That may herald a bright future through 2019 and beyond, Marak says. “While the S&P 500 has gained back most of last summer’s losses, China, in general, is still behind in terms of equity prices,” he says. “Now that U.S.-China trade talks are poised to finalize a deal, now could be an opportune time to jump in.”
Fidelity MSCI Real Estate Index ETF (FREL)
FREL is a U.S.-focused REIT ETF that tracks the MSCI USA IMI Real Estate Index. The current composition is based on 174 holdings, which includes data centers, public storage facilities, wireless tower companies and assisted living facilities. It’s one of the best options to consider when looking for a low-cost ETF; the expense ratio is just 0.08 percent. In terms of performance, FREL has a 30-day SEC yield of 3.24 percent and a year-to-date cumulative market return of 12.7 percent. This one could work well for investors seeking a passive strategy with a domestic equity concentration.
Global X Funds SuperDividend REIT ETF (SRET)
SRET invests in 30 of the highest dividend yield REITs globally, with a top 10 holding list that includes Arbor Realty Trust (ABR), Starwood Property Trust (STWD) and Park Hotels & Resorts (PK). The ETF’s return on equity is 10.6 percent. SRET has a heavier concentrate on mortgage REITs compared with other global REIT ETFs, which could potentially raise its risk profile. The 30-day SEC yield approached 8 percent at the end of February, but the main concern for investors may be whether that yield is sustainable for the long term.
GraniteShares HIPS US High Income ETF (HIPS)
HIPS is not a pure-play REIT ETF; the fund invests in a diverse array of pass-through securities, including REITs, master limited partnerships, business development companies and debt-based closed-end funds. HIPS uses the TFMS HIPS 300 Index, which tracks the movements of 300 high-income securities, as its benchmark. This ETF has a four-star Morningstar rating and its rated as both high risk and high reward. HIPS is primary designed to deliver high yield without concentrating risk in one sector.
VanEck Vectors Mortgage REIT Income ETF (MORT)
MORT follows the MVIS US Mortgage REITs Index and zeroes in exclusively on U.S. mortgage REITs. That could make the ETF more sensitive to interest rate fluctuations and regulatory shifts, but it’s off to a good strong in 2019, with a 30-day SEC yield of 10.4 percent. MORT has high dividend yield potential overall, with a 12-month yield of 7.5 percent. With an expense ratio of 0.41 percent, it’s a bit more pricey compared with some of the other REIT ETFs included here but that may easily be outweighed by returns.
Top REIT ETFs to buy.
To recap, the seven best REIT ETFs to invest in are:
— Vanguard Real Estate ETF (VNQ)
— iShares Global REIT ETF (REET)
— Invesco China Real Estate ETF (TAO)
— Fidelity MSCI Real Estate Index ETF (FREL)
— Global X Funds SuperDividend REIT ETF (SRET)
— GraniteShares HIPS US High Income ETF (HIPS)
— VanEck Vectors Mortgage REIT Income ETF (MORT)
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