So, you’re thinking about investing in real estate, but not sure where to start? Well, you’re in the right place. We’re going to talk about the best real estate ETFs you should consider.
Real estate ETFs, or Exchange-Traded Funds, are like a basket of real estate investments bundled together.
They give you an easy way to get into the real estate market without buying properties or dealing with all the landlord stuff. Plus, these funds are pretty good at kicking out income, which is a nice bonus for investors.
Now, you might have heard that the real estate market took a hit lately. Rising interest rates, the whole work-from-home trend due to Covid-19, and some extra inflation have given it a rough time since the end of 2021.
But hey, don’t let that scare you away from real estate – it’s still a rock-solid asset class.
According to some smart folks at PwC, many real estate professionals are staying calm and looking ahead to brighter days. They’re riding out the rough patch and getting ready for another period of growth and strong returns.
Well, the classic law of supply and demand is on real estate’s side. There’s only so much land and property to go around, and lots of folks want a piece of it.
Our list of the best real estate ETFs covers a wide range of U.S. REITs (Real Estate Investment Trusts).
These REITs specialize in different areas like office spaces, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure, and even hotels.
So, you’ve got options to choose from, depending on what’s your real estate flavor.
|Real Estate ETFs||Expense Ratio|
|Invesco S&P 500 Equal Weight Real Estate ETF (RSPR)||0.40%|
|JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE)||0.11%|
|JPMorgan Realty Income ETF (JPRE)||0.50%|
|Nuveen Short-Term REIT ETF (NURE)||0.35%|
|Vanguard Real Estate ETF (VNQ)||0.12%|
|The Real Estate Select Sector SPDR Fund (XLRE)||0.10%|
|Pacer Benchmark Industrial Real Estate Sector ETF (INDS)||0.60%|
|iShares Core U.S. REIT ETF (USRT)||0.08%|
|iShares Residential and Multisector Real Estate ETF (REZ)||0.48%|
|Global X Green Building ETF (GRNR)||0.45%|
What you'll learn:
➤ Best Real Estate ETFs
1️⃣ Invesco S&P 500 Equal Weight Real Estate ETF (RSPR)
- Expense Ratio: 0.40%
- Dividend Yield: 2.91%
- Avg. Ann. Return Since Inception (August 2015): 4.68%
The Invesco S&P 500 Equal Weight Real Estate ETF (RSPR) stands out for its unique approach to real estate sector investment.
Unlike many traditional index funds, RSPR equally weights every company within the fund, which gives it a value-oriented focus. This approach emphasizes companies with more favorable valuations rather than just those with the highest prices.
RSPR’s portfolio comprises around 30 companies, with the top 10 holdings accounting for about 35% of the assets.
The fund primarily allocates to mid-cap core companies, which exhibit a balance of growth and value characteristics. These companies typically have reasonable valuations, stable earnings, and income potential.
One of the standout features of RSPR is its dividend yield, which has been consistently increasing and is more than one percentage point higher than the average of the S&P 500 Index.
Additionally, RSPR has delivered superior total returns compared to its Morningstar peer group average over the past one, three, and five years. It offers a combination of good income and strong relative total returns, making it a compelling choice for investors.
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2️⃣ JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE)
- Expense Ratio: 0.11%
- Dividend Yield: 3.92%
- Avg. Ann. Return Since Inception (June 2018): 3.39%
The JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE) is a passive real estate investment trust that tracks the MSCI US REIT Custom Capped Index. This index has a bias towards smaller- and mid-cap real estate companies.
In contrast to RSPR, BBRE weights its holdings based on market capitalization, which is calculated by multiplying the share price by the number of shares outstanding.
With approximately 125 holdings, BBRE’s portfolio is highly concentrated. Nearly 50% of the fund’s value is tied up in its top 10 positions. BBRE has consistently outperformed its Morningstar category average over the past one, three, and five years.
BBRE boasts a low expense ratio, providing it with a competitive edge by minimizing the fees that can eat into performance.
Moreover, its attractive yield generates a healthy cash flow for investors while they await a potential rebound in the real estate market. This combination adds vitality to the fund’s share price value, making it an appealing choice.
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3️⃣ JPMorgan Realty Income ETF (JPRE)
- Expense Ratio: 0.50%
- Dividend Yield: 2.94%
- 10-Year Avg. Ann. Return: 4.23%
Setting itself apart as the sole actively managed ETF on our list, the JPMorgan Realty Income ETF (JPRE) distinguishes itself within the real estate category by focusing on slightly lower volatility holdings.
This approach provides stability in performance during market fluctuations. How does JPRE achieve this? The fund targets companies with lower yields but higher projected earnings growth for the next three to five years compared to its Morningstar category average.
JPRE positions itself for superior capital appreciation while generating a dividend yield that’s expected to be slightly more conservative than its peer group. The ETF maintains a concentrated portfolio, with approximately 30 holdings. Around 60% of shareholder funds are invested in the top 10 holdings.
Having been in operation since December 1997, JPRE stands as one of the oldest REIT exchange-traded funds. It consistently delivers stable performance and holds Morningstar’s prestigious Gold Medal rating.
For investors in search of a real estate fund focused on smaller, high-growth companies with an emphasis on both capital appreciation and current income, exploring JPRE is a prudent choice.
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4️⃣ Nuveen Short-Term REIT ETF (NURE)
- Expense Ratio: 0.35%
- Dividend Yield: 3.61%
- Avg. Ann. Return Since Inception (Dec. 2016): 4.54%
The Nuveen Short-Term REIT ETF (NURE) is invested in approximately 35 U.S. REITs that primarily focus on short-term leases, including apartment REITs, hotels, self-storage facilities, and manufactured homes.
This unique approach tends to make the values of its properties less susceptible to changes in interest rates. In contrast, REITs with long-term lease agreements typically face challenges when interest rates rise.
NURE has delivered an average annual total return that’s roughly five times that of its Morningstar category average over the past three years. It also outperformed its category average over the past five years.
Moreover, the fund has demonstrated lower volatility during market downturns over the same periods. If you are in search of a low-fee real estate fund with promising prospects for favorable long-term risk-adjusted returns, NURE is a compelling option to consider.
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5️⃣ Vanguard Real Estate ETF (VNQ)
- Expense Ratio: 0.12%
- Dividend Yield: 4.74%
- 10-Year Avg. Ann. Return: 4.11%
The Vanguard Real Estate ETF, in this share class that was first introduced in September 2004, has solidified its position as the largest fund on our list of best real estate ETFs, boasting $28.9 billion in total net assets. Its low expense ratio is another attractive feature.
VNQ holds a diversified portfolio of approximately 165 companies, with a bias towards core-style equities in the midcap size range.
VNQ’s dividend yield surpasses its Morningstar category average, making it an appealing choice for income-seeking investors.
The fund’s holdings are notably concentrated in telecommunications tower REITs, which own and operate cell phone towers, as well as industrial REITs. Prominent holdings within VNQ include Prologis, American Tower, and Equinix.
Telecommunications tower REITs benefit from stable income generated from cell phone carriers, while industrial REITs accommodate a variety of tenants in diverse locations, providing them with reliable, diversified income.
In a challenging commercial real estate market, these REITs serve as relatively safe investment options, offering a dependable source of passive income.
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6️⃣ The Real Estate Select Sector SPDR Fund (XLRE)
- Expense Ratio: 0.10%
- Dividend Yield: 3.89%
- Avg. Ann. Return Since Inception (October 2015): 5.19%
The Real Estate Select Sector SPDR Fund is designed to replicate the performance of all the real estate companies included in the S&P 500. This fund comprises holdings representing real estate management and development companies, with mortgage REITs being excluded from its portfolio.
XLRE maintains a well-diversified portfolio consisting of approximately 30 securities. These securities are anticipated to exhibit a projected earnings growth of about 6% over the next three to five years, surpassing the expected earnings growth of its Morningstar category average.
The fund allocates around 60% of its assets to its top 10 holdings, offering investors a degree of concentration in companies with substantial potential.
Furthermore, XLRE boasts a low expense ratio, which means the majority of your investment capital is channeled into the fund rather than being absorbed by management fees. For those seeking a fundamental real estate investment within a diversified portfolio, XLRE stands as a strong choice.
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7️⃣ Pacer Benchmark Industrial Real Estate Sector ETF (INDS)
- Expense Ratio: 0.60%
- Dividend Yield: 4.61%
- Avg. Ann. Return Since Inception (May 2018): 9.40%
The Pacer Benchmark Industrial Real Estate Sector ETF specializes in industrial REITs with a focus on e-commerce distribution, logistics, and self-storage facilities. This ETF is non-diversified, meaning it concentrates its investments in a specific sector.
Approximately 70% of INDS’s holdings are U.S.-based companies. Notably, the fund boasts a lower price-earnings ratio compared to the average within its Morningstar category. This appealing valuation indicates potential room for price appreciation.
With about 65% of its assets concentrated in its top-10 holdings, INDS exhibits significant confidence in its major investments.
Prologis, which focuses on logistics facilities, and the self-storage company Public Storage, are the predominant positions by a considerable margin, each nearly three times the size of any other individual holdings.
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8️⃣ iShares Core U.S. REIT ETF (USRT)
- Expense Ratio: 0.08%
- Dividend Yield: 3.66%
- 10-Year Avg. Ann. Return: 4.32%
If you’re seeking a real estate ETF with an extremely low expense ratio, the iShares Core U.S. REIT ETF stands out as it boasts the lowest annual expense ratio among the options on our list.
USRT provides exposure to the entire public U.S. real estate market, excluding infrastructure, mortgage, and timber sectors. The fund maintains a portfolio of around 135 holdings, primarily consisting of midcap stocks, with a predominant focus on core-style equities.
USRT’s dividend yield is slightly higher than the category average. Moreover, its average annual total return has outperformed the category average over the past one, three, five, and 10 years, making it a strong contender in the real estate ETF space.
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9️⃣ iShares Residential and Multisector Real Estate ETF (REZ)
- Expense Ratio: 0.48%
- Dividend Yield: 3.34%
- 10-Year Avg. Ann. Return: 5.38%
The iShares Residential and Multisector Real Estate ETF focuses exclusively on U.S. residential, healthcare, and self-storage real estate equities. These sectors benefit from strong demographic tailwinds.
The demand for additional residential housing in the U.S. remains high. The healthcare sector is driven by aging baby boomers, while the self-storage sector thrives due to consumer strength and limited space.
REZ has consistently outperformed its Morningstar category average over the past three, five, and 10 years. For real estate investors seeking a combination of cash flow and the potential for strong capital appreciation, driven by favorable demographic trends, this ETF is a compelling choice.
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🔟 Global X Green Building ETF (GRNR)
- Expense Ratio: 0.45%
- Dividend Yield: 3.43%
- Avg. Ann. Return Since Inception (April 2022): -11.07%
While new funds are typically excluded from our best ETF lists, the Global X Green Building ETF offers an opportunity for investors interested in companies involved in the global green building materials market.
GRNR aims to capitalize on the growing demand for buildings designed to reduce or eliminate carbon emissions and other negative global environmental impacts.
Despite its negative average annual total return since inception, it has performed significantly better in the past year, surpassing the negative average return of its Morningstar category. GRNR now holds a Morningstar Bronze Star rating.
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➤ What’s a REIT?
A REIT (Real Estate Investment Trust) is a company that either owns or provides financing for various real estate assets. These assets can include a wide range of properties, from residential to commercial.
What’s unique about REITs is that they trade on stock exchanges, which means that almost anyone can invest in these real estate portfolios.
REITs come in various forms. Some are diversified and invest in all categories of real estate properties, while others focus on a single type, such as retail, office, apartments, medical facilities, or data centers. There are also those that own a mix of different property types.
One key advantage of REITs is that they receive favorable tax treatment to support their operations and, in return, are obligated to distribute at least 90% of their taxable income to shareholders in the form of dividends.
This makes REITs a popular choice among income investors who seek regular income from their investments.
Additionally, REITs tend to perform well when faced with rising inflation and higher interest rates.
According to the National Association of REITs (Nareit), during periods of rising interest rates, the average four-quarter return for REITs is approximately 16.55%, while it’s around 10.68% in non-rising rate periods.
➤ REITs vs Real Estate ETFs
A Real Estate Investment Trust (REIT) and real estate ETFs both provide opportunities for investors to gain exposure to the real estate market, but they have distinct differences in structure, investment focus, and taxation.
Here’s a comparison between REITs and other real estate ETFs:
REIT (Real Estate Investment Trust): A REIT is a company that owns, operates, or finances income-producing real estate assets. It’s a tax-advantaged investment structure that is required to distribute at least 90% of its taxable income to shareholders in the form of dividends.
REITs can be publicly traded, privately held, or publicly registered but not listed on a stock exchange.
Real Estate ETFs: These are exchange-traded funds that primarily invest in the shares of various REITs or other real estate-related companies. These ETFs may track real estate indices or use other strategies to offer investors exposure to real estate.
2. Investment Focus:
REITs: REITs can focus on different types of real estate properties, including residential, commercial, industrial, healthcare, data centers, retail, apartments, and more.
They can also be categorized based on their investment strategy (e.g., equity REITs that own and operate properties or mortgage REITs that invest in real estate loans).
Real Estate ETFs: These ETFs can be more diversified in their investment focus. They may invest in a broad spectrum of real estate sectors or specialize in a specific subsector, depending on the ETF’s underlying index or strategy.
REITs: REITs receive preferential tax treatment by distributing at least 90% of their taxable income as dividends to shareholders. In return, they don’t pay federal income tax at the corporate level. Shareholders are typically responsible for taxes on the dividends they receive.
Real Estate ETFs: These ETFs are generally structured as traditional ETFs and may not offer the same tax advantages as REITs. Investors are taxed on capital gains when they sell ETF shares and on dividends distributed by the ETF.
4. Liquidity and Accessibility:
REITs: Individual REITs are typically listed on stock exchanges and can be bought and sold like stocks. They offer investors direct ownership in specific real estate companies.
Real Estate ETFs: These ETFs also trade on stock exchanges, providing liquidity and ease of access. They offer diversification by holding multiple real estate-related assets within a single investment.
REITs: Investing in individual REITs may lack diversification. Each REIT focuses on a specific property type or strategy, which can expose investors to sector-specific risks.
Real Estate ETFs: These ETFs are designed to provide diversification by holding a portfolio of real estate assets or shares of various REITs. They can offer a broader exposure to different sectors of the real estate market.
In summary, REITs are individual companies that own and operate real estate properties and offer specific tax advantages.
Real estate ETFs are investment funds that hold diversified portfolios of real estate assets or REIT shares, offering investors exposure to the real estate market without direct ownership in specific properties.
The choice between investing in REITs or other real estate ETFs depends on individual investment goals, preferences, and risk tolerance.
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➤ Final Thoughts
In summary, the world of real estate investment has seen its share of challenges in recent years, with factors like rising interest rates, the influence of remote work policies, and inflationary pressures impacting the market.
However, real estate remains a crucial and resilient asset class for investors to consider.
As professionals in the real estate industry look to adapt and position themselves for sustained growth and strong returns, it’s important for investors to explore opportunities to participate in this market.
Real estate ETFs provide an excellent means to do just that, offering a diverse range of options to align with individual investment goals and preferences.
This list of the best real estate ETFs includes a variety of choices, from REITs specializing in offices, apartments, and retail centers to funds focused on infrastructure, data centers, and medical facilities.
Whether you’re an income-focused investor, a growth-oriented one, or seeking a balance of both, there’s an ETF on this list that can help you achieve your objectives.
Additionally, these ETFs come with various expense ratios, allowing investors to balance the trade-off between costs and returns.
Some, like the iShares Core U.S. REIT ETF, offer impressively low expense ratios, while others may have slightly higher fees but make up for it with strong performance.
Investors should take into consideration their specific investment goals, risk tolerance, and time horizon when selecting the real estate ETF that best fits their needs.
While recent market dynamics have posed challenges, the principles of supply and demand continue to favor the long-term value of real estate assets.
So, whether you’re looking for dependable income, potential capital appreciation, or a blend of both, these top real estate ETFs serve as valuable tools for accessing the real estate market, providing the opportunity for diversification and the potential for strong long-term returns.
Remember that it’s always a wise strategy to consult with a financial advisor or conduct thorough research before making any investment decisions to ensure they align with your overall financial plan and objectives.
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