Best REIT ETFs to Invest in Real Estate

Freitag, 1. Juli 2022

Diversified Real Estate Investing with REIT ETFs

About Real estate investment trusts (REITs)

Real estate investment trusts (REITs) are popular options for investors, which want to have real estate in their portfolio or just like the often high dividend yields and regular payments. Some of the well-known REIT companies like AGNC Investment Corp. (AGNC), Realty Income (O), LTC Properties (LTC), and STAG Industrial (STAG) are paying their dividend monthly to attract investors. REIT shares are traded on public exchanges and therefore have the potential for growth through price gains. Nevertheless, real estate is also risky, as the real estate crisis in 2008 clearly showed. As a consequence investors need to carefully think about the individual weighting. ETFs on REITs won't only classically include real estate, they also include companies that run data centers like DIGITAL REALTY TRUST, cell towers like WELLTOWER, or storage companies like PUBLIC STORAGE. Besides metals like gold and silver, real estate is another asset class that stands for real-world value and seems to be a good choice for inflationary times.

The best ETFs for investing in REITs:

1. iShares Global REIT ETF (REET)

Highly diversified global REIT ETF with U.S. overweight of around 70%

Probably the best-known ETF comes from the market leader ishares and offers a good package. With 347 positions, the diversification is medium, but high when viewed in the sector of real estate companies. However, with slightly more than 70%, the focus is strongly on the United States. This should be kept in mind. The sector distribution, on the other hand, looks more diversified. Industrial REITs, Retail REITs, Specialized REITs, and Residential Reits are overweighted. The Hotel & Resort sector is small at around 3%. Overall, however, this reflects the overall REIT market well. Fund assets are sufficiently high for this theme ETF at around $3.379 billion and distributions are made quarterly. The 12-month yield of distributions through interest and dividend payments is 3.14%. The cost of the ETF is also attractive at 0.14%.

Dividend yield: 3.14% (12-months)


2. Vanguard Real Estate ETF (VNQ)

Medium diversified REIT ETF with 100% exposure to U.S. assets

The second ETF we have is from Vanguard. This also offers a good package in our view but is 100% focused on the United States. This reduces the degree of diversification. With only about 164 holdings, you are much more focused. This is also reflected in the allocation. The ETF has a clear focus on Specialized REITs with about 35%. Residential REITs, Industrial REITs, and Retail REITs are in 2nd, 3rd, and 4th place. All other sectors are underweighted. However, since Specialized REITs are not directly assignable to a category, it is not a specific overweight. Specialized REITs can be in several areas at once. Therefore, this ETF is also well-diversified, just places its focus much more on the U.S. market. With a fund size of about 86 billion, it's much smaller than iShares. Distributions are also made every quarter. The 12-month yield of distributions through interest and dividend payments is 2.90%. The cost of the ETF is attractive at 0.12%.

Dividend yield: 2.9% (12-months)


3. Vanguard Global Ex-U.S. Real Estate ETF (VNQI)

Highly diversified REIT ETF with worldwide exposure ex-U.S. assets

This Vanguard fund steers away from the United States and does not include U.S. assets. Thus, it is very well suited to give the portfolio a more global orientation. In most portfolios, the United States is overweighted. It contains about 700 stocks, which are well diversified regionally. The geographic distribution is currently as follows: 21% Japan, 11% Australia, 8% Hong Kong, 7% China, and 20% spread in Europe developed. The largest position is the very well-known German residential real estate operator Vonovia with just under 3%. Overall, a nice package that can lower the often heavy overweight in the U.S. Especially in combination with the Vanguard Real Estate ETF (VNQ), it is relatively easy to determine the personal weighting. In addition, the dividend yield is high and the cost is very favorable at 0.12%.

Dividend yield: 7.15% (12-months)


4. Fidelity MSCI Real Estate Index ETF (FREL)

Medium diversified REIT ETF with 100% exposure to U.S. assets

The next candidate we have is an ETF from Fidelity. This is very similar to the Vanguard Real Estate ETF and is also 100% invested in the U.S. market. The fund volume is significantly smaller at 1.8 billion, but it also costs only 0.084%. Since Fidelity can be classified as a good provider, one could well accept the slightly increased risk for the reduction in costs. We like the Vanguard more and would love to accept the higher costs, as these are marginal.

Dividend yield: 2.81% (12-months)


5. iShares Mortgage Real Estate Capped ETF (REM)

Low diversified REIT ETF with 100% U.S. mortgage assets

Do you like it a little bit riskier and are not afraid of price fluctuations when there can be nice gains in return? No problem: Then mortgage-related REITs might be right up your alley. With this ETF you invest exclusively in REITs that operate mortgage businesses. The three largest holdings are Annaly Capital (NLY), Starwood Property (STWD), and AGNC Investment (AGNC). However, the threat of rising interest rates is harming mortgage REITs. Once the worst is priced in, however, this ETF might be worth a look. Risk-averse investors may want to stay away. Additionally, the expense ratio is relatively high at 0.48%, the focus is 100% on the U.S. and the ETF is highly concentrated with only 33 holdings. However, it also offers a very attractive dividend yield. At the right time, this ETF can certainly be fun.

Dividend yield: 7.03% (12-months)


6. Charles Schwab U.S. REIT ETF (SCHH)

Medium diversified U.S. REIT ETF without exposure to mortage businesses

This Schwab ETF has only about $6.5 billion in assets and contains about 139 assets that are exclusively in real estate and do not engage in mortgage transactions. Thus, its orientation is strongly "physical." For those who want to hide the riskier mortgage business, this is a well-rounded package. The assets are also 100% U.S.

Dividend yield: 1.74% (12-months)



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