Exchange-traded funds, or ETFs, that invest in real estate investment trusts, or REITs, may be the perfect security for investors looking for a cost-effective and convenient investment with a reliable dividend income and good growth potential.
REITs are specialty companies that earn income by investing in various classes of commercial real estate or in real estate mortgages or mortgage bonds. Current tax law allows REITs to avoid corporate taxes as long as they distribute a minimum of 90% of taxable income back to shareholders as dividends.
[Sign up for stock news with our Invested newsletter.]
ETFs are unique open-ended mutual funds which, unlike traditional funds, are dynamically priced and trade in real time on major exchanges the same way stocks trade. Some REITs ETFs are actively managed — meaning that the companies in the funds are selected by professional portfolio managers — but most are passively managed, which means they are based on a specific REIT index or follow a strict set of rules or predetermined criteria.
Real estate investing is a complicated and sophisticated field. Building a sound, well-diversified REIT portfolio from among the more than 225 publicly traded REITs on the market would require a high degree of specialized commercial real estate expertise that most retail investors simply don’t possess. That’s where REIT ETFs come in.
Like all ETFs, these funds provide professional management and security selection; this is true of both actively managed and passively managed funds. Additionally, REIT ETFs can provide a level of diversification that few retail investors can achieve on their own. Add to this the cost-effective nature of these funds and REIT ETF investing becomes very hard to beat for income investors with an eye toward long-term growth.
The seven funds on this list provide exposure to commercial real estate, dependable dividend income and the opportunity for share price appreciation:
| ETF | Market Cap | Forward Dividend Yield as of July 23 |
| Fidelity MSCI Real Estate Index ETF (ticker: FREL) | $1.1 billion | 3.6% |
| Vanguard Real Estate Index Fund ETF Shares (VNQ) | $63.8 billion | 3.9% |
| iShares Residential and Multisector Real Estate ETF (REZ) | $790 million | 2.5% |
| Schwab U.S. REIT ETF (SCHH) | $8.0 billion | 3.0% |
| VanEck Mortgage REIT Income ETF (MORT) | $306 million | 12.4% |
| Dimensional Global Real Estate ETF (DFGR) | $2.5 billion | 3.6% |
| The Real Estate Select Sector SPDR Fund (XLRE) | $7.4 billion | 3.3% |
Fidelity MSCI Real Estate Index ETF (FREL)
FREL is owned and managed by Fidelity Investments, one of the largest and most well-respected asset managers in the world. The fund has net assets of over $1 billion and was designed to mirror the performance of the MSCI USA IMI Real Estate 25/25 Index.
The fund is not limited by market capitalization or real estate asset class constraints, meaning it holds small-, mid- and large-cap REITs that specialize in different classes of commercial real estate.
FREL holds roughly 140 individual REITs, making it very well diversified. Close to half the fund is invested in retail, digital infrastructure, health care and logistics REITs.
The fund’s broad investment base and superior diversification make FREL suitable as a core real estate holding. FREL has an expense ratio of 0.08% and a current yield of 3.6%.
Vanguard Real Estate Index Fund ETF Shares (VNQ)
VNQ boasts net assets of more than $63 billion, making it the largest publicly traded REIT ETF. The fund is administered by Vanguard, a recognized leader in index ETF investing.
VNQ was designed to mirror the performance of the MSCI U.S. Investable Market Real Estate 20/50 Index. VNQ is a broad-based fund with over 150 individual REIT holdings. This fund can be looked at as a proxy for the entire domestic REIT universe. After the reasonable expense ratio of 0.13% is subtracted, investors should not see any appreciable tracking error between the fund’s returns and those of its benchmark.
To minimize concentration risk, the fund does not allow any single REIT to represent more than 20% of assets, and the aggregate weight of all REITs that make up over 5% of the portfolio can’t exceed 50% of total assets.
VNQ has a current forward dividend yield of 3.9%.
[READ: 10 Stocks That Have Doubled Their Dividends in 10 Years]
iShares Residential and Multisector Real Estate ETF (REZ)
REZ is a $790 million REIT ETF that tracks the FTSE Nareit All Residential Capped Index. As the name of the fund implies, REZ invests in residential REITs or multisector REITS. On the residential side, the fund’s holdings include AvalonBay Communities Inc. (AVB) and Invitation Homes Inc. (INVH). Its multisector holdings include Ventas Inc. (VTR) and Public Storage (PSA).
Unlike the first two ETFs on today’s list, REZ is not a broad-based or comprehensive fund. Instead, REZ is suitable for investors looking for targeted exposure to the residential real estate industry supplemented by REITs from other profitable real estate classes. The fund has fewer than 40 holdings in its portfolio.
REZ has a current forward dividend yield of 2.5% and an expense ratio of 0.48%. To maintain continuity with its benchmark, the fund is rebalanced quarterly.
Schwab U.S. REIT ETF (SCHH)
SCHH should be seriously considered by investors looking for excellent diversification from both a geographic and an asset class standpoint. The fund tracks the performance of the Dow Jones Equity All REIT Capped Index, a benchmark designed to be a straightforward, low-cost approach to broad market REIT investing.
SCHH has about 120 REIT holdings. It owns a wide range of real estate classes, including data centers, self-storage, retail and industrial. The fund’s top three holdings are American Tower Corp. (AMT), Prologis Inc. (PLD) and Welltower Inc. (WELL). Together, those three companies make up about 22.5% of the fund’s $790 million in net assets.
SCHH has a current dividend yield of 2.5%.
VanEck Mortgage REIT Income ETF (MORT)
With a current forward dividend yield of 12.4%, MORT is the highest yield REIT ETF on today’s list, and it’s also the only mortgage REIT, or mREIT. An mREIT doesn’t own physical real estate; instead, it earns interest income by holding mortgages or mortgage bonds. That’s why mREITs tend to have higher yields than equity REITs.
MORT is based on the MVIS U.S. Mortgage REIT Index, which is a well-known benchmark in the mREIT segment of real estate investing. The objective of the fund is to match the performance of the index after its expense ratio of 0.43% has been accounted for.
MORT had about $306 million in net assets. The fund is suitable for investors looking for a high dividend income who are less concerned with capital appreciation. MORT will behave like a bond fund, meaning it will go down when interest rates are going up, but it can go up in value when rates are falling.
MORT currently yields 12.4%.
Dimensional Global Real Estate ETF (DFGR)
President Donald Trump’s trade and tariff policies have investors reconsidering global investing. DFGR may be the right real estate fund for investors looking to add an international component to their portfolios.
DFGR is an actively managed global fund that invests in quality commercial real estate companies all over the world. This includes emerging markets and developing market nations. DFGR has about $2.5 billion in net assets and, according to the fund’s marketing material, gives equal attention to capital appreciation potential and current income production.
Because of this fund’s heightened risk profile, DFGR is not suitable for conservative investors. The fund is appropriate for fairly aggressive investors who understand and can accept the risks associated with global ETF investing.
DFGR has a current dividend yield of 3.6% and an expense ratio of 0.22%.
The Real Estate Select Sector SPDR Fund (XLRE)
XLRE is a low-cost REIT ETF in the SPDR family of index ETF funds. The fund tracks the S&P Real Estate Sector Index, has an expense ratio of just 0.08% and boasts assets of over $7 billion.
In concert with its benchmark, the fund invests in all of the S&P 500 companies that are in the GICS real estate sector. As such, the fund is appropriate for investors seeking targeted, strategic exposure to the real estate segment of the S&P 500.
Approximately 18% of the fund’s assets are invested in digital infrastructure REITs, such as American Tower and Digital Realty Trust Inc. (DLR). Given the current data center boom, XLRE could be a very timely investment indeed.
The fund has a current forward dividend yield of 3.3%.
More from U.S. News
10 Inverse ETFs That Gain in a Bear Market
5 Best Stocks for Beginners With Little Money
7 of the Best Growth Funds to Buy and Hold
7 Best REIT ETFs to buy Right Now originally appeared on usnews.com
Update 07/24/25: This story was previously published at an earlier date and has been updated with new information.
