Real estate is a reliable asset class that is often found in diversified portfolios. Real estate investment trusts aren't the top Morningstar fund categories in terms of price appreciation or income generation, but they offer a good balance of both over the long term.
Currently, the real estate fund sector offers an average dividend yield of 3.21%, more than double the 1.32% dividend yield of the overall stock market, as represented by Vanguard 500 Index Fund Admiral Share Class (VFIAX), a popular alternative to the widely followed S&P 500 Index.
But the real estate fund sector has outperformed rival groups such as natural resources, including booming energy stocks, with an average annual return of 4.99% over the past decade, compared with 12.69% for the S&P 500. Real estate funds have also outperformed high-yield bond funds and target-date retirement funds.
Many no-load real estate investment trusts are only available through retirement plans, brokerages, or financial advisors, and even then, you can often access the Class A shares on your own, with slightly higher costs and slightly lower returns.
Our funds' returns have been at or above the Morningstar category average over the past 10 years, and all but one have below-average fees, with the exception being just a few basis points above the average.
Investors who prefer regular dividend payments as part of a reasonable total return will enjoy shopping around for a diverse list of top-rated real estate investment trusts from a variety of providers.