REIT exchange-traded funds, or ETFs, are one of the most popular ways to play real estate, and for good reason. For starters, these instruments are liquid and easy to trade, putting expensive office or residential properties within reach for even small-time investors. Additionally, real estate investment trusts, or REITs, are well-known for their dividends, and related REIT ETFs throw off significant yield like the rest of the sector.
So what are the best REIT ETFs to buy now? That depends on your personal strategy — but fortunately, there’s a variety of great options to choose from.
The following ETFs all offer exposure to the real estate sector in different ways. However, all are diversified funds made up of a group of investments, so you won’t be putting all your eggs in one basket.
| REIT ETF | Dividend Yield |
| Vanguard Real Estate ETF (ticker: VNQ) | 4.1% |
| VanEck Mortgage REIT Income ETF (MORT) | 13.5% |
| Charles Schwab U.S. REIT ETF (SCHH) | 3.0% |
| Real Estate Select Sector SPDR Fund (XLRE) | 3.6% |
| Vanguard Global Ex-U.S. Real Estate ETF (VNQI) | 0.6% |
| Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR) | 2.3% |
| iShares Residential and Multisector Real Estate ETF (REZ) | 3.4% |
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Why Invest in REIT ETFs?
Real estate is one of the most attractive investments for many people because of its long-standing reputation as a way to build wealth and produce steady income over time. But buying and then renting out a second or third home may be out of reach for people who don’t have an extra $250,000 laying around. Even if they did, they may not be comfortable locking all that money up in one place. Real estate isn’t particularly liquid, and it’s difficult to get cash back out if and when you need it.
REITs offer an alternative, though. This unique class of publicly traded company is granted special tax treatment to help it deal with the capital-intensive nature of the real estate business. And in exchange, all real estate investment trusts must deliver 90% of taxable income back to shareholders as terms of being structured as a trust instead of a typical stock. That means a mandate for big-time dividends.
REIT ETFs are like all exchange-traded funds, insofar as they are a compilation of related assets. That means you’re getting a diversified group of these investments to boot.
In other words, you can buy a piece of 30 or 40 top-tier real estate companies for the cost of a single share. And since these funds are exchange-traded, you can get in or out of your investment easily during regular market hours. But even though you get all that flexibility, you still have the potential for big dividend income as well as long-term share appreciation.
The Largest REIT ETF by Assets
When it comes to real estate funds, the Vanguard Real Estate ETF (VNQ) is far and away the leader. This REIT ETF boasts roughly $32.8 billion in total assets under management, seven times the next fund in line, and regularly has daily volume that tops 5 million shares traded.
It’s incredibly broad, comprising about 170 domestic holdings at present, including telecom infrastructure play American Tower Corp. (AMT), warehouse operator Prologis Inc. (PLD) and data center operator Equinix Inc. (EQIX), in addition to more traditional office-building or shopping-mall operators. If you’re looking for a simple way to play REITs, this liquid and diversified offering is the go-to option.
VNQ’s yield is 4.1%, which is almost twice that of the typical S&P 500 stock.
High-Yield REIT ETF
If you really are interested in income, however, the VanEck Mortgage REIT Income ETF (MORT) cuts out office-park operators and other real estate firms to zero in on the highest-yield segment of the sector: mortgage-related REITs.
There’s a mammoth 13.5% yield for MORT based on the last 12 months of payouts, but there’s also big risk, too. First, these mortgage-related REITs suffer from lower margins in a rising-interest-rate environment, thanks to increases in borrowing costs. And second, any widespread downturn that results in a wave of missed payments or foreclosures will have serious negative consequences for companies holding mortgage paper. MORT is reliant on a small group of mortgage-related REITs with about 27 positions in the portfolio at present, like Annaly Capital Management Inc. (NLY) and AGNC Investment Corp. (AGNC), and all are in the same corner of the market and will move in lockstep — up or down. Keep that in mind before you get too enamored with the yield and overlook the risk.
Another word of warning: MORT is just under $170 million in assets, so it’s not among the most established funds out there. An alternative would be the iShares Mortgage Real Estate ETF (REM), which also is focused on this segment of REITs but yields a bit less at 9.6%, even though it has nearly $600 million in total assets.
[READ: 6 REITs to Capitalize on Return-to-Office Trend]
Other REIT ETFs to Buy
There are dozens of real estate funds out there beyond these options. All offer different flavors, and with a good understanding of your personal goals and a little bit of research, you’re likely to find what you’re looking for. Here are a few others:
Charles Schwab U.S. REIT ETF (SCHH)
The No. 2 among diversified REIT ETFs, this Schwab fund is no slouch with about $5.7 billion in assets. Its portfolio differs a bit from the leading Vanguard fund, with a slightly smaller list of about 130 publicly traded real estate stocks, thanks in part to the exclusion of mortgage-related and “hybrid” REITs that hold financial instruments instead of physical property. This holds back the yield, however, giving SCHH a distribution rate of just 3% over the last 12 months.
Real Estate Select Sector SPDR Fund (XLRE)
Next in line among leading REIT ETFs is this sector SPDR fund with almost $4.7 billion in assets. Despite being right up there with Schwab and Vanguard, however, it offers a much narrower range of real estate companies with a total portfolio of just 33 or so stocks. The names are familiar but just more focused near the top of the sector, with leaders Prologis and American Tower representing around 25% of the portfolio between the two of them. The dividend yield tops some of the other funds thanks to this narrow portfolio, with a payout of 3.6%.
Vanguard Global Ex-U.S. Real Estate ETF (VNQI)
As an “ex-U.S” fund, this Vanguard REIT ETF excludes any real estate holding headquartered in the U.S. That means a very different portfolio from the other funds, with about 717 different holdings from far-flung geographies. The leading region is Japan, with 23% of assets, followed by 11% in Australia and nearly 11% in Hong Kong. The dividends are far more volatile and irregular from these companies and from this fund, and right now the payouts annualize to approximately 0.6% because only one distribution has been paid in the last 12 months. However, in 2021 there was a time the yield topped 8% — so if you’re not afraid of the irregularity or risk, VNQI could be worth a look.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
A more targeted REIT that plays only part of this sector, this Pacer fund is focused only on digital-related infrastructure properties. This includes leading telecom tower REITs, such as Crown Castle Inc. (CCI) and American Tower, but also firms like Equinix, which houses servers hosting cloud-based data for third parties. The 12-month yield is just 2.3%, but this roughly $750 million fund could have more long-term growth potential than some of the sleepier real estate sectors.
iShares Residential and Multisector Real Estate ETF (REZ)
If you want to get right into the residential part of real estate, the nearly $630 million REZ fund offers a unique option. While some health care and self-storage enterprises pop up thanks to the “multisector” part of this fund, it is decidedly less exposed to the challenges of commercial real estate or industrial REITs. The yield is about 3.4% based on the last 12 months of payouts, but remember that this fund is more sensitive to the ups and downs of the property market than some of the others with business-facing operations.
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7 Best REIT ETFs to Buy for 2023 originally appeared on usnews.com
Update 04/20/23: This story was previously published at an earlier date and has been updated with new information.
