The best REIT ETFs for 2020.
Investors can track total REIT ETF returns and performance through different indexes. These indexes or benchmarks seek performance results that mimic the U.S. equity REIT market. These vehicles use a passive investing approach to replicate REIT index funds as closely as possible. Holding REIT ETFs can be a great strategy for investors to safely expose their holdings to real estate operations without the hassle of owning actual properties. Andrew Rosen, advisor and partner at Diversified Lifelong Advisors in Wilmington, Delaware, recommends these components when shopping around for REIT ETFs: "liquidity, the benchmark or the certain segmentation of REITs for performance-tracking purposes, costs and management -- which company is managing the ETF and their track record." Consider these elements as you dive into this list.
Vanguard Real Estate ETF (VNQ)
This Vanguard REIT ETF is a great income-producing investment, with a yield of 4.1%. It has a low expense ratio of 0.12%, so investors don't have to worry about the expense chipping away at returns. Investors can monitor VNQ through the MSCI U.S. REIT Index, a benchmark Vanguard uses to help track REIT performance. "The easiest way to get broad exposure to the sector is to buy a general REIT, which owns a mix of all types of REITs/property types. This can be secured through Vanguard's VNQ," says Thomas Hayes, chairman and managing member at Great Hill Capital in New York City. The goal of investors who purchase this fund is for the asset to produce a higher level of income that provides moderate long-term capital appreciation, a great option for income-seeking investors. VNQ covers two-thirds of the value of the entire U.S. REIT market, with its market capitalization allocations across mid- to large-cap equities deeming it a stable diversified asset.
iShares Core U.S. REIT ETF (USRT)
USRT has about 155 holdings and contains the 50 largest REIT companies within the FTSE Nareit Composite Index, an index that tracks the performance of the U.S. REIT industry. This diversification provides exposure to a large number of REITs. This REIT ETF focuses on health care, residential and retail. USRT has an expense ratio of 0.08%, which is low, and no other expenses associated with managing the fund. This makes it a cheap fund that can compete with an expense ratio lower than Vanguard's VNQ. USRT's largest holding is Prologis (PLD), a global leader in leasing distribution facilities to more than 5,000 customers worldwide with a great sales record and promising future growth. Its second-largest holding is Equinix (EQIX), which specializes in internet connection and data centers and plans to expand its operations after a recent $750 million acquisition deal.
iShares Global REIT ETF (REET)
REET offers broad exposure to REITs around the world. It provides a sector view that tracks investment results of an index made up of global real estate equities in developed and emerging markets. This fund exhibits a particular advantage REITs are known for: diversification. "By their very nature, most REITs are diversified, representing ownership in many different real estate properties, not one specific property," says Robert Johnson, finance professor at Creighton University in Omaha, Nebraska. What makes this REIT different from others is its global focus: REET has holdings in the U.S., Japan, the U.K. and Australia, adding another level of diversification. REET has more than 300 holdings, a net asset value of around $21 and a low expense ratio of 0.14%. As of today, this REIT has assets of almost $2 billion. The dividend yield distribution is also high at 6.89%.
Fidelity MSCI Real Estate Index ETF (FREL)
FREL has an affordable expense ratio of 0.08% and a dividend yield distribution around 4%. According to Rosen, for investors trying to determine a stable dividend, a solid distribution yield for a REIT ETF ranges between 3% and 4%. For funds with higher yields, he recommends looking at the underlying holdings, saying, "Sometimes a fund pays more because there's more inherent risk or the downside risk is more threatening." This REIT ETF provides healthy one-month cumulative returns of 8.8% and five-year, long-term annualized returns of 4.1%. It has a historic above average return rating, holding average risk. FREL's holdings consist of companies with market capitalizations of a broad spectrum, with a blend of value and growth. There's a slightly larger percentage of midcapitalization of 45.9% followed by large-cap holdings of 41.2%. The majority of its holdings such as American Tower Corp. (AMT) and Crown Castle International Corp. (CCI) show substantial returns year to date.
SPDR Dow Jones REIT ETF (RWR)
This is a slightly more expensive REIT ETF than others on the list, with an expense ratio of 0.25% and a current market price of $83.38, but it still has competitive costs relative to its peers. It's a direct competitor with VNQ and USRT, which are cheaper options. But RWR is one of the oldest real estate ETFs on the market, which increases its edge. RWR uses the Dow Jones U.S. Select REIT Index as a solid benchmark that serves as a proxy for direct real estate investing. This ETF has more than 90 holdings, and among its top sectors are industrial/office (37%), residential (26%) and self-storage (10%). Its dividend yield distribution is 4.16%, total assets under management are $1.36 billion and the average trading volume is 233,360. With these great statistics, RWR provides investors with a liquid fund that invests in a diverse market-capitalization-weighted basket of U.S. REITs.
iShares Residential Real Estate ETF (REZ)
The REZ REIT ETF has an expense ratio of 0.48% and total assets of $336.69 million. REZ is a quality holding to have on the books since it provides exposure to the U.S. residential real estate sector. It focuses its assets on domestic real estate stocks and REITs. The investment objective of this REIT it to track the performance of the index consisting of U.S. residential, health care and self-storage real estate equities. The breakdown of REIT types has residential REITs at 51%, health care REITs at 31% and specialized REITs at 17%. The total return since its inception in May 2007 is 5.07%.
JPMorgan BetaBuilders MSCI US REIT ETF (BBRE)
BBRE is JPMorgan's real estate ETF that provides exposure to the U.S. REIT equity market using an indexed passive approach. There are 144 holdings with a distribution yield of 2.76% and a turnover ratio of 4.51%. BBRE's industry breakdown varies from industrial to apartments, office, health care and storage, among others. There is a very small percentage of short-term investments at 0.9%. Since its inception in June 2018, the fund's market price has been on a steady rise. There was a decrease in price in the first quarter of 2020 due to the economic impacts of the pandemic. The fund, however, started to increase in price in April and has been increasing since, which shows the asset's resiliency.
Consider these REIT ETFs this year:
-- Vanguard Real Estate ETF (VNQ)
-- iShares Core US REIT ETF (USRT)
-- iShares Global REIT ETF (REET)
-- Fidelity MSCI Real Estate Index ETF (FREL)
-- SPDR Dow Jones REIT ETF (RWR)
-- iShares Residential Real Estate ETF (REZ)
-- JPMorgan BetaBuilders MSCI US REIT ETF (BBRE)
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