In recent testimony before Congress, Federal Reserve Chair Jerome Powell gave every indication that interest rates have stopped their incessant march higher. Although he didn’t provide lawmakers with a precise timetable, he insinuated rate cuts were coming “at some point” this year.
The stock market rallied on the news. Interest rates represent the cost of capital. Lower rates are good for most sectors but are particularly good for commercial real estate; the real estate sector borrows heavily and refinances frequently. Even small rate cuts can have a big impact on that rate-sensitive business. And what’s true for the real estate sector as a whole is true also for real estate investment trusts, commonly called REITs.
REITS are specialty investment securities that invest their assets exclusively in income-producing commercial real estate or commercial real estate financial instruments like mortgages or mortgage bonds. Because REITs distribute at least 90% of their after-tax income to shareholders as dividends, they share attributes with fixed-income securities. In other words, like bonds, REITs tend to do well when rates go down.
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In other words, looming rate cuts in 2024 might make it an excellent time to invest in REITs.
Buying REIT exchange-traded funds, or ETFs, is a proven way to gain exposure to the potentially lucrative commercial real estate sector while benefiting from professional management and diversification. But which ones should you buy right now?
Here are seven of the best REIT ETFs to buy and hold in 2024:
| REIT ETF | Expense Ratio |
| Vident U.S. Diversified Real Estate ETF (ticker: PPTY) | 0.53% |
| SPDR Dow Jones International Real Estate ETF (RWX) | 0.59% |
| Fidelity MSCI Real Estate Index ETF (FREL) | 0.084% |
| Invesco KBW Premium Yield Equity REIT ETF (KBWY) | 0.35% |
| Invesco Active U.S. Real Estate Fund (PSR) | 0.35% |
| IQ CBRE NextGen Real Estate ETF (ROOF) | 0.61% |
| VanEck Mortgage REIT Income ETF (MORT) | 0.43%* |
*MORT’s expense ratio is currently waived until at least Sept. 1, 2024.
Vident U.S. Diversified Real Estate ETF (PPTY)
Asset manager Vident is a firm that prides itself on investing based on sound fundamentals. That philosophy is the foundation of its security selection process and guides the firm in choosing the REITs to include in PPTY.
There are 99 individual REIT holdings in PPTY and each one was selected only after being thoroughly vetted by the professionals at Vident. The portfolio managers at PPTY believe successful real estate investing depends on the location, property type, debt levels and company management.
PPTY seeks to be well diversified among property classes. It only holds REITs with manageable debt levels and it will only buy companies that have skilled and experienced management teams. That dedication to detail contributed to the $125 million fund reporting a 12.7% net asset value (NAV) total return for the year 2023.
30-day SEC yield: 3.8%
SPDR Dow Jones International Real Estate ETF (RWX)
RWX is the right REIT ETF for investors who want exposure to publicly traded real estate firms outside of the U.S.
RWX is an index ETF based on the Dow Jones Global ex-U.S. Select Real Estate Securities Index. That index is a float-adjusted market cap index that reflects the overall performance of commercial real estate companies around the world, excluding America.
The composition of the index is reviewed quarterly and RWX will make adjustments as warranted. RWX only owns equity REITs; there are no mortgage REITs (mREITs) or hybrid REITS in the portfolio.
Because of the international composition of RWX, it may not be an appropriate investment for very conservative investors. But investors who are looking for global exposure and who can afford the enhanced risks associated with international investing should consider this high-quality $295 million ETF.
30-day SEC yield: 3.6%
Fidelity MSCI Real Estate Index ETF (FREL)
FREL is based on the MSCI USA IMI Real Estate 25/25 Index. The fund is managed by Fidelity Investments, one of the largest and most well-respected asset managers in the U.S.
FREL is a $960 million REIT ETF designed to replicate the performance of the underlying index, minus, of course, its small expense ratio, which is just 0.084%. The objective of the fund is to provide current income to shareholders while also giving them the opportunity for capital appreciation. FREL only invests in domestic REITs.
Currently, FREL has 152 REIT holdings. Investors should keep in mind, however, that FREL is not a strict replication index ETF. The portfolio managers have an enhanced level of flexibility. At any given time, they may or may not own every stock in the index.
Dividend yield: 3.8%
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
Invesco KBW Premium Yield Equity REIT ETF (KBWY)
The primary objective of KBWY is to provide a consistently high dividend to shareholders. It seeks to achieve this objective by mirroring the KBW Nasdaq Premium Yield Equity REIT. The index is unique in that it is dividend-yield-weighted rather than cap-weighted or equal-weighted, placing more emphasis on high income for ETF owners.
The result for shareholders is excellent income that’s paid monthly rather than quarterly.
KBWY is a $195 million fund that invests in small- and mid-cap REITs that trade on the Nasdaq. This approach can lead to more risk and more volatility. While this is a high-yield fund, just keep in mind that you’re making a conscious decision to take on more risk when investing in this fund.
30-day SEC yield: 7.9%
Invesco Active U.S. Real Estate Fund (PSR)
PSR selects the REITs it invests in from the FTSE NAREIT All Equity REIT Index, but this $72 million ETF is not an index fund. On the contrary, PSR is an actively managed ETF run by an experienced team of portfolio managers at Invesco.
What makes this REIT ETF unique it the fact that it uses a quantitative approach to security selection. Fund managers run the REITs of the index through a series of quantitative screens that are designed to identify companies that are attractively priced and poised for growth in both income and capital appreciation. The top results are selected for inclusion in PSR.
In addition to traditional REITs, PSR will invest in real estate operating companies (REOCs) which are similar to REITs but are organized under a different set of corporate laws. The ultimate goal of PSR is a high total return over the long run.
30-day SEC yield: 4.1%
IQ CBRE NextGen Real Estate ETF (ROOF)
Prior to a recent name change, ROOF was called IQ U.S. Real Estate Small Cap ETF. The ticker symbol and the general objective of the $150 million fund, however, has remained constant.
ROOF is an index ETF based on a proprietary index know as the IQ CBRE NextGen Real Estate Index. The goal of ROOF is to benefit from real estate investments that are involved in new and emerging technologies related to such things as data warehousing, mobile phone towers, server farms and e-commerce.
The fund will only invest in developed-market companies, but may nonetheless include a number of small- and mid-cap REITs. Investors looking for an exclusively large-cap fund will need to look elsewhere. That said, for investors who are interested in next-generation commercial real estate and who understand the risks profile of the fund, ROOF is worth considering.
30-day SEC yield: 3.5%
VanEck Mortgage REIT Income ETF (MORT)
When building a portfolio of REIT ETFs, investors should not neglect mortgage REITs. Mortgage REITs differ from equity REITs in the fact that they don’t own commercial real estate directly. Instead, mREITs invest in financial obligations that are related to real estate. These instruments might include individual mortgages, collateralized mortgage bonds such as those issued by U.S. government housing agencies, or other debt instruments, and they tend to come with some sizable income streams of their own.
MORT is based on a popular benchmark called the MVIS US Mortgage REITs Index. The portfolio managers of MORT seek to duplicate the index as closely as possible. Investors can expect the fund’s performance to match the performance of the index, less the internal expense ratio of 0.43%, which has been waived until at least Sept. 1.
MORT is a $260 million ETF that provides investors with an exceptional, ongoing dividend yield. The high yield, however, makes the fund very sensitive to fluctuations in interest rates. Performance has been lacking during the recent rising-rate environment. On the plus side, MORT should do better when interest rates fall.
30-day SEC yield: 13%
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7 of the Best REIT ETFs to Buy for 2024 originally appeared on usnews.com
Update 03/08/24: This story was previously published at an earlier date and has been updated with new information.
