Every S&P 500 sector is showing gains as 2025 wraps up — except for real estate, which is down about 1% in the calendar year through Dec. 18.
Nonetheless, the sector held its own in what the National Association of Real Estate Investment Trusts (NAREIT) calls “challenging economic and financial market conditions.”
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In a December 2025 report, “Commercial Real Estate and REITs: Dual Divergences Set Stage for REIT Rebound in 2026,” NAREIT notes that “REITs have continued to deliver solid operational performance and maintained well-structured balance sheets with low leverage. While this has been a consistent theme over the past several years, it has been underappreciated by investors.”
REITs can add diversification to a stock and bond portfolio, although there are some caveats for investors to consider. These include:
— REIT dividends are usually taxed as ordinary income, reducing after-tax returns.
— REITs are often sensitive to rising interest rates.
— Diversification benefits may shrink during broad market downturns.
On the plus side, REITs can offer inflation protection and reliable long-term income, and are especially well-suited for tax-advantaged accounts.
While 2025’s underperformance can’t predict how the real estate sector will fare in 2026, investors who want the benefits of diversification along with income potential might consider the ETFs below as part of a broadly diversified portfolio:
| REIT | 30-day SEC yield | Expense ratio |
| Vanguard Real Estate ETF (ticker: VNQ) | 2.8%* | 0.13% |
| Schwab U.S. REIT ETF (SCHH) | 3.6% | 0.07% |
| Real Estate Select Sector SPDR Fund (XLRE) | 3.5% | 0.08% |
| iShares U.S. Real Estate ETF (IYR) | 2.9% | 0.38% |
| iShares Core U.S. REIT ETF (USRT) | 3.2% | 0.08% |
| iShares Select U.S. REIT ETF (ICF) | 2.7% | 0.32% |
| State Street SPDR Dow Jones REIT ETF (RWR) | 3.7% | 0.25% |
*Adjusted effective yield as of Nov. 30.
Vanguard Real Estate ETF (VNQ)
This market capitalization-weighted fund is the largest REIT in its category, with about $34 billion under management.
“VNQ was one of the first funds I put into my IRA, and as one of the largest equity REIT funds on the market, it’s many investors’ first REIT too,” says Korinne Sugasawara, a certified financial planner (CFP) at Kite & Compass Financial in San Jose, California.
She adds that this ETF tracks the MSCI U.S. Investable Market Real Estate 25/50 Index, a broad portfolio of more than 150 U.S. REITs across all market capitalizations. Its expense ratio of 0.13% is consistent with the low fees investors find throughout the Vanguard family.
“VNQ provides investors with a broad exposure across several different property types: cell towers, data centers, residential, retail and industrial,” Sugasawara says.
“If you’re a DIY investor who’s looking for REIT exposure without overthinking it, VNQ is a solid choice,” she adds. “And if you already own one of Vanguard’s total stock market funds, keep in mind they have low-single-digit REIT exposure built in.”
Schwab U.S. REIT ETF (SCHH)
Schwab’s REIT offering tracks the Dow Jones Equity All REIT Capped Index. It holds more than 120 securities, with top components being Welltower Inc. (WELL), Prologis Inc. (PLD) and American Tower Corp. (AMT).
This ETF excludes mortgage REITs. “This results in a more streamlined portfolio of companies that directly own, operate or manage income-producing real estate,” says Zach Novak, a CFP at Novak Financial Partners in Carbondale, Illinois.
“With an expense ratio of 0.07%, SCHH is one of the lowest-cost REIT ETFs available,” he adds. “The combination of low fees, clear index construction, and broad REIT exposure makes this fund a strong fit for investors seeking a cost-efficient way to participate in the U.S. real estate market.”
[Read: 6 Best Monthly Dividend ETFs to Buy Today]
Real Estate Select Sector SPDR Fund (XLRE)
This ETF allows investors to simply carve out exposure to the real estate sector of the S&P 500. This means holdings are limited to large-cap domestic equities.
The S&P real estate sector has underperformed the broader index in terms of price appreciation in 2025. However, for investors seeking income, this ETF delivers a yield of 3.5% and a low expense ratio of 0.08%.
Because this ETF is limited to S&P 500 companies, it tends to overweight areas dominated by larger players, such as data centers, cell towers and infrastructure-oriented REITs, Novak says.
“Its narrower focus gives it a performance profile that can diverge from broader REIT indexes, especially in periods when the largest real estate companies significantly outperform or lag the broader market,” he adds. “Investors who prefer an S&P 500-aligned methodology often use XLRE to target the real estate sector specifically.”
iShares U.S. Real Estate ETF (IYR)
This 61-component ETF tracks the Dow Jones U.S. Real Estate Capped Index. Novak points out that it captures equity REITs, which own and operate real estate, such as apartments and offices, and earn money from collecting rent, but IYR also includes real estate management and development companies. This gives IYR slightly broader exposure compared to funds limited to equity REITs, Novak adds.
“The fund includes a representative mix of large-, mid- and small-cap real estate companies,” he says. IYR’s expense ratio is 0.38%, which is higher than many of the newer, low-cost REIT ETFs, he adds.
“Nevertheless, IYR remains popular due to its long operating history, deep liquidity and robust options market, making it a frequent choice among institutional and tactical investors,” Novak says.
iShares Core U.S. REIT ETF (USRT)
USRT offers broad exposure to a large swath of the U.S. equity REIT market, Sugasawara says. “It tracks the FTSE Nareit Equity REITs 40 Act Capped Index, which has over 130 holdings for a 0.08% fee,” she says.
She adds that this ETF measures performance of a broad range of property types, including all market capitalizations. It’s market-cap weighted, with the largest holdings being Welltower, Prologis and Equinix Inc. (EQIX).
“Notably, USRT’s underlying index excludes timberland and telecommunications REITs by design, but core sectors such as residential, industrial, retail, health care and data-center REITs remain well represented,” Sugasawara adds.
“If you want almost comprehensive equity REIT coverage at a rock-bottom fee and don’t mind missing a few niche property types, USRT delivers,” she says.
iShares Select U.S. REIT ETF (ICF)
This is yet another REIT ETF from the iShares fund family. It measures performance of the Cohen & Steers Realty Majors Index. This is a relatively concentrated fund, with just 30 holdings.
Developer Cohen & Steers says its underlying market cap-weighted index is “composed of REITs that we believe are dominant in their respective property sectors.”
The average market capitalization is more than $40 billion, with large-, mid- and small-cap REITs all represented. Its 30-day SEC yield is 2.7%.
The largest holdings, Prologis, Welltower and American Tower, are also heavily weighted components of other market cap-weighted REIT ETFs. This ETF’s expense ratio of 0.32% is on the higher side, relative to rival products.
State Street SPDR Dow Jones REIT ETF (RWR)
This ETF, with $1.7 billion under management, tracks the Dow Jones U.S. Select REIT Capped Index. It holds more than 100 REITs. According to fund literature, the index “excludes securities whose value is not always closely tied to the value of the underlying real estate. The reason for the exclusions is that factors other than real estate supply and demand, such as interest rates, influence the market value of these companies.”
Top sectors represented are health care, retail, residential and industrial. This ETF has an expense ratio of 0.25% and a 30-day SEC yield of 3.7%.
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7 Best REIT ETFs to Buy for 2026 originally appeared on usnews.com
Update 12/19/25: This story was published at an earlier date and has been updated with new information.
