Thanks to fears about weaker spending along with increased borrowing costs driven by a high interest rate environment, real estate hasn’t exactly been red hot lately. In fact, of the roughly 30 or so real estate companies that are members of the S&P 500 index, nine of them are down by 10% or more since Jan. 1, 2023, in what is otherwise an up year for the stock market.
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But as the old saying goes, past performance is not an indicator of future returns. And real estate remains one of the most reliable sources of income for investors, in any environment.
We’re not talking about being a landlord, either, but simply owning stocks that are classified as real estate investment trusts — or REITs for short. REITs are generous dividend payers because they are mandated to deliver at least 90% of their taxable income back to shareholders. As such, they are an important part of any well-rounded portfolio and particularly valuable to investors after dividends.
The following seven investment vehicles are different ways to play the real estate sector via the best REIT ETFs right now:
| REIT ETF | Trailing 12-month dividend yield (as of Sept. 14) |
| Vanguard Real Estate ETF (ticker: VNQ) | 4.6% |
| Real Estate Select Sector SPDR Fund (XLRE) | 3.8% |
| Charles Schwab U.S. REIT ETF (SCHH) | 3.2% |
| iShares Mortgage Real Estate ETF (REM) | 10% |
| Global X SuperDividend REIT ETF (SRET) | 7.8% |
| Pacer Benchmark Data & Infrastructure Real Estate SCTR (SRVR) | 2.5% |
| Vanguard Global Ex-U.S. Real Estate ETF (VNQI) | 0.6% |
Vanguard Real Estate ETF (VNQ)
VNQ is the runaway leader among REIT ETFs, commanding a massive $32 billion in total assets under management and volume of nearly 5 million shares traded each day. It’s a sector fund, but it’s also incredibly diversified across this corner of the market, with more than 160 holdings. Warehouse operator Prologis Inc. (PLD), telecom infrastructure player American Tower Corp. (AMT) and data center operator Equinix Inc. (EQIX) rank as the top three holdings. If you’re looking for a simple way to play all things real estate on Wall Street, this may be your best REIT ETF to buy.
12-month yield: 4.6%
Real Estate Select Sector SPDR Fund (XLRE)
Another leader is this sector SPDR fund with around $4.5 billion in assets. It offers a much narrower range of real estate companies than the prior Vanguard fund, however, with a total portfolio of just the 30 or so leading stocks based on market size. The top holdings are similar, but the weightings are much more dramatic. Specifically, those same top three holdings alone represent about 30% of the entire portfolio right now. Interestingly enough, that focus hasn’t resulted in an overly aggressive risk profile — mostly because it cuts out some of the smaller and more aggressive real estate players, and instead relies on the big and more stable names in the sector.
12-month yield: 3.8%
Charles Schwab U.S. REIT ETF (SCHH)
Splitting the difference, this Schwab REIT fund has about $6 billion in assets. Its portfolio differs only slightly from the Vanguard fund we began with, with a smaller list of about 130 publicly traded real estate stocks, but in one meaningful way — it excludes mortgage-related and “hybrid” REITs that hold financial instruments instead of physical property. You may be surprised to learn that some real estate firms can call themselves members of the sector without owning any actual real estate themselves, but it’s true. If that strikes you as odd, then SCHH is a good way to carve these kinds of REITs out. Just be aware that you leave some yield on the table as a result of that shift.
12-month yield: 3.2%
[READ: 7 Best International Stock Funds to Buy in 2023]
iShares Mortgage Real Estate ETF (REM)
The flip side of avoiding the higher-yield but higher-risk area of mortgage paper is to dive in headfirst in pursuit of big income potential. This $648 million mortgage-focused REIT ETF traffics mainly in companies that play the mortgage market, often doing so with lots of “leverage” as they borrow funds to invest in someone else’s debt. After the meltdown of 2008 and 2009, you can imagine how this can go terribly wrong. The fund is down about 3.9% in the past 12 months as rates have ratcheted higher and squeezed these companies, but it has gained 10.8% so far in 2023, as of July 24. The jaw-dropping yield is definitely something that you won’t find elsewhere, and if you’re not scared of the risk or believe that the environment is starting to get friendlier to mortgage lenders, then REM could be a high-yield REIT ETF to consider.
12-month yield: 10%
Global X SuperDividend REIT ETF (SRET)
Another big-yield option for real estate investors is this $244 million Global X fund that prioritizes — you guessed it — big dividends over anything else. More than half of assets are in income-oriented U.S. real estate companies, but the rest are in international opportunities in Asia, Europe and other areas. In fact, its No. 4 holding right now is French mall operator Klépierre (LI.FR). If you want to chase yield regardless of jurisdiction, then SRET could be one of the best REIT ETFs for you.
12-month yield: 7.8%
Pacer Benchmark Data & Infrastructure Real Estate SCTR (SRVR)
The $576 million SRVR ETF is an interesting option if you want to look beyond the typical commercial or residential real estate stocks. Specifically, it is involved in the real estate firms that support the modern digital economy — from server farm operator Equinix and Digital Realty Trust Inc. (DLR) to telecom tower operators like American Tower and Crown Castle Inc. (CCI). You only get a yield slightly better than the broader S&P 500 index. But if you want to play real estate with a tech twist, this fund could be an interesting option.
12-month yield: 2.5%
Vanguard Global Ex-U.S. Real Estate ETF (VNQI)
All the prior funds rely heavily on the U.S. market, but VNQI is a REIT ETF that’s focused solely on overseas real estate investments. It excludes any real estate holding headquartered in the U.S. via an “ex-U.S.” approach, creating a very different portfolio of about 660 holdings led by Australian industrial property specialist Goodman Group (GMG.AU) and Japanese real estate developer Mitsui Fudosan Co. Ltd. (8801.JP). Generally, international companies pay less infrequently — and VNQI typically only pays out to shareholders a single time annually as a result. As a result of a drop in payouts last year, the trailing yield over the past 12 months is admittedly quite anemic. But this ETF has $3.5 billion in assets for a reason — and if VNQI gets back to where it was in terms of income in 2021, it would yield about 8.6% at current prices.
12-month yield: 0.6%
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7 Best REIT ETFs to Buy originally appeared on usnews.com
Update 09/15/23: This story was previously published at an earlier date and has been updated with new information.
