Real estate is a great way to grow your wealth. According to Forbes magazine, real estate was the primary means of wealth creation for 215 of the world's 2,755 billionaires. Meanwhile, real estate has helped countless billionaires accumulate and grow their wealth.
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But real estate investing isn't just for the wealthy. Thanks to Congress, anyone can now invest in wealth-generating commercial real estate through real estate investment trusts (REITs), and the financial services industry has made it even easier to invest in a diversified portfolio of commercial real estate by developing several exchange-traded funds (ETFs) focused on this sector.
Here we will go into more detail on how you can combine these two investment vehicles to easily get started in real estate investing.
Best REIT ETFs
Best REIT ETFs
In 1960, Congress created REITs to allow average investors to participate in the wealth-generating power of cash-flowing commercial real estate. These entities own pools of rental properties or real estate-backed mortgages and generate rental or interest income. To comply with IRS regulations, they must distribute at least 90% of their taxable net income as dividends to shareholders. REITs require less effort and capital than purchasing real estate directly. They also offer lower risk, greater liquidity, and have historically outperformed the S&P 500.
But with more than 200 publicly traded REITs focused on 12 real estate sectors, it can be difficult for a beginner investor to know where to start. You could invest in individual REITs, but you risk picking the wrong one that puts you at risk of having your dividends cut.
This is where ETFs come in. These organizations hold multiple REITs and other real estate stocks, giving investors broad exposure to the sector and helping to reduce risk. Here are some of the top real estate ETF options:
Data source: Company website and YCharts. Performance and AUM data as of March 8, 2022. Top REIT ETFsTicker SymbolPerformance (Total Return)Past 12 MonthsStart DateIssuerAssets Under Management (AUM)Vanguard Real Estate ETF (NYSEMKT: VNQ) 22.2%September 23, 2004The Vanguard Group$84.7 billioniShares US Real Estate ETF (NYSEMKT: IYR) 21.4%June 12, 2000BlackRock (NYSE: BLK)$5.6 billionSchwab US REIT ETF (NYSEMKT: SCHH) 24.4%January 13, 2011Charles Schwab (NYSE: SCHW)$7.3 billionReal Estate Select SPDR Fund (NYSEMKT: XLRE) 28.2%October 7, 2015SSGA Funds Management, Inc.5.3 billioniShares Cohen & Steers REIT ETF (NYSEMKT: ICF) 27.3%January 29, 2001 BlackRock $2.7 billion
Here we take a closer look at these top REIT ETFs.
Our List
Vanguard Real Estate ETF
Vanguard Real Estate ETF is a giant among REIT ETFs, with more than 10 times the assets under management of its nearest competitor. It invests in REITs and other real estate stocks. As of the start of 2022, the ETF holds 168 real estate stocks, with the top five holdings being:
Vanguard Real Estate II Index Fund: 11.3% of the portfolioPrologis (PLD 0.86%): 6.5%American Tower (AMT -0.48%): 6.5%Crown Castle International (CCI 0.32%): 4.4%Equinix (EQIX 0.62%): 3.7%
This broad REIT ETF offers investors a variety of diversification opportunities. Of the approximately 170 stocks, the largest holding is an associated REIT index fund that holds 166 REITs and real estate stocks, while the other top five stocks include the largest REITs by market capitalization. The list includes Prologis, the largest industrial REIT, the top two infrastructure REITs (American Tower and Crown Castle), and Equinix, a leading data center REIT. This allows investors to achieve some diversification across property types.
Overall, the ETF's top 10 stocks make up 44.9% of the portfolio. As a result, the ETF offers broad exposure to the entire REIT sector while focusing on the largest REITs dominating the industry.
One thing that sets the Vanguard Real Estate ETF apart from other ETFs is the ETF's expense ratio: at 0.12%, it's over 50% lower than the industry average of 0.24%, allowing investors to retain more of their earnings.
iShares US Real Estate ETF
iShares US Real Estate ETF invests in domestic real estate stocks and REITs. Managed by BlackRock, the ETF holds 87 stocks as of the beginning of 2022, with the top five holdings being:
Prologis: 7.7%American Tower: 7.4%Crown Castle: 5.4%Equinix: 4.3%Public Storage (PSA 0.38%): 4%
These are the big five REITs, and they operate across a range of property types, including industrial, communications infrastructure, data centers, self-storage REITs, etc. Overall, the ETF's top 10 stocks make up 42% of the portfolio, offering investors a slightly more diversified investment opportunity than the Vanguard ETF, despite having half the number of stocks.
One drawback of this REIT ETF is its expense ratio: at 0.41%, it's well above the industry average, so high fees eat into returns and this ETF has slightly underperformed its benchmark over the years.
Schwab US REIT ETF
This ETF offers easy access to REITs as it only holds REITs, unlike other ETFs that include non-REIT real estate stocks in their portfolio. As of the beginning of 2022, the fund contains 139 REITs, with the top five being:
American Tower: 8.3%, Prologis: 7.7%, Crown Castle: 5.6%, Equinix: 4.5%, Public Storage: 3.6%.
Like many other REIT ETFs, the Schwab fund holds REITs based on market capitalization rather than an equal weighting system, which is why its top holdings are roughly the same as most other top REIT ETFs, while its top 10 stocks make up 43.5% of the portfolio.
Its expense ratio stands out: Its extremely low expense ratio of 0.07% allows investors to capture more of the income from the underlying REIT.
Real Estate Select SPDR Fund
The Real Estate Select SPDR Fund allows investors to invest more directly in real estate. This ETF only holds REITs in the S&P 500 index, giving it a limited investment focus. As of early 2022, the ETF only holds 29 REITs, including some well-known names such as:
Prologis: 11.2%, American Tower: 10.7%, Crown Castle: 7.7%, Equinix: 6.4%, Public Storage: 5.8%.
As the top 5 largest REITs, it's no surprise to see this group leading the way. Additionally, because this ETF is solely focused on REITs in the S&P 500, the top 10 stocks make up 61% of the portfolio, making it an ideal choice for investors who want to focus on the largest REITs.
This ETF has a low expense ratio of 0.1%, making it a solid choice for investors who want exposure to the largest REITs at a low cost.
iShares Cohen & Steers REIT ETF
iShares Cohen & Steers REIT ETF is another REIT ETF managed by BlackRock that takes a slightly different approach to investing in REITs. This ETF focuses on holding large real estate companies that are dominant in their respective real estate sectors. The result is a concentrated portfolio of 30 REITs.
However, there are some familiar names among the 30 companies, such as:
Crown Castle: 8%, Prologis: 7.9%, American Tower: 7.7%, Equinix: 7%, Public Storage: 6.4%.
Overall, the top 10 stocks accounted for 58% of the portfolio as of the start of 2022.
Because this ETF takes an active approach to investing in REITs, it has a relatively high expense ratio of 0.33%. It's a great choice for investors who want to focus on leading REITs rather than limiting themselves to only those included in the S&P 500.
Related Investment Topics
Should you invest?
These ETFs make it easier to invest in REITs
REITs have historically delivered attractive total returns to investors by offering above-average dividend income and price appreciation. With so many options to choose from, it can be difficult for investors to determine which REITs are best for their portfolios. That's where REIT ETFs come in. REIT ETFs make investing in the sector easier by providing investors with broad exposure to major REITs. While most REIT ETFs have similar core holdings, the best ETFs all offer their own unique spin, giving investors some great options.
Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Matt DiLallo owns shares of American Tower, Crown Castle, Equinix, Prologis, and Public Storage and has bought January 2026 $170 calls on American Tower and sold January 2026 $175 calls on American Tower. The Motley Fool owns shares of and recommends American Tower, Charles Schwab, Crown Castle, Equinix, Prologis, and Vanguard Real Estate ETFs. The Motley Fool recommends the following options: buy January 2026 $180 calls on American Tower, buy January 2026 $90 calls on Prologis, sell January 2026 $185 calls on American Tower, and sell June 2024 $65 puts on Charles Schwab. The Motley Fool has a disclosure policy.
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