3 REIT ETFs to Buy
Real estate investment trusts (REITs) are the most accessible way for the average person to invest in real estate. They only cost the price of a share (versus the cost of, say, a whole building), and they’re not restricted to accredited investors like many other real estate investments.
But much like you’d prefer to own hundreds of stocks instead of just one or two, you might want to hold a number of REITs to diversify your exposure across several parts of the real estate market. That’s where exchange-traded funds (ETFs) come in. REIT ETFs can help you defray single-ticker risk by spreading your assets across many REITs.
Let’s look at some of the best REIT ETFs you can buy to bolster your portfolio income.
Disclaimer: This article does not constitute individualized investment advice. These funds appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
The Best REIT ETFs You Can Buy
The following funds are some of the best real estate investment trust ETFs on the market.
Related: The 16 Best ETFs to Buy Right Now
I’ve kept screening to a minimum here. All ETFs on this list have a Morningstar Medalist Rating (a forward-looking analytical view of the ETF) of either Bronze, Silver, or Gold, and at least $75 million in assets under management (AUM). I personally love to examine newer funds, but targeting more established ETFs with a certain baseline of assets reduces your risk of purchasing a fund that might eventually close.
Past that, I’m just looking for REITs that come at the sector from different angles. It’s normal to see a sizable amount of overlap in REIT fund holdings—the sector itself only holds a couple hundred stocks across all market capitalizations, after all, and most are going to gravitate toward the largest components. Where the following funds differ is in their strategy and approach.
Let’s check out a few selections from my fuller list of the best REIT ETFs.
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Vanguard Real Estate ETF
- Assets under management: $37.0 billion*
- Dividend yield: 3.6%
- Expense ratio: 0.13%, or $1.30 per year on every $1,000 invested
- Morningstar Medalist rating: Gold
Vanguard Real Estate ETF (VNQ) is the 500-pound gorilla of the U.S. real estate space, boasting well more than three times the assets of the second-largest largest ETF.
Normally, I’d point to Vanguard’s low expenses as the reason. But in this case, it’s the longevity. VNQ’s fees, while low compared to the entire field, are still higher than several of its closest competitors. But the fund has had a long time to build up its asset base—VNQ, which got its start in September 2004, is the ETF share class of Vanguard’s Real Estate Index Fund, which has been around since May 1996.
Related: 10 Best Index Funds You Can Buy Now
Vanguard’s REIT ETF tracks the MSCI US Investable Market Real Estate 25/50 Index, which invests in the real estate stocks from a pretty wide stock selection universe, then weights them by market capitalization. That means the bigger the company, the more assets are allocated to the stock—and the greater influence that stock has over the portfolio’s performance. So while VNQ does hold a sprawling portfolio of 160 REITs, it’s not evenly balanced. Consider that the top three holdings—healthcare and senior housing landlord Welltower (WELL), logistics property owner Prologis (PLD), and datacenter REIT (EQIX)—effectively account for 20% of the ETF’s performance.
Past that, you’re getting exposure to retail and residential real estate, hotels, offices, and other property types. You’re also getting a good mix of different-sized REITs; large caps only make up 30% of the portfolio, while mid-caps are the largest cohort at 45%, and smalls make up the remaining 25%.
“Vanguard Real Estate Index’s accurate representation of the US real estate segment and its low fee are an attractive combination,” Morningstar Associate Analyst Brian Paoli says about the fund’s Gold Medalist rating. That, as well as a typically high yield compared to many broad-based real estate funds, makes VNQ one of the best REIT ETFs you can buy right now.
* Vanguard fund assets are spread across multiple share classes, including mutual funds and ETFs alike. Assets listed for each fund in this story are for the ETF share class only.
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Invesco S&P 500 Equal Weight Real Estate ETF
- Assets under management: $99.0 million
- Dividend yield: 2.7%
- Expense ratio: 0.40%, or $4.00 per year on every $1,000 invested
- Morningstar Medalist rating: Bronze
If you’re not familiar with State Street’s “Select Sector” ETFs, they’re among the most well-known sector funds in existence, simply holding the S&P 500 companies within a given sector and weighting them by market cap. They’re simple and fairly inexpensive, though like with the funds above, they put more assets into the larger companies and less into the smaller ones—great for stability, but it limits the potential for emerging small caps to influence the fund.
That’s where the Invesco S&P 500 Equal Weight Real Estate ETF (RSPR) comes in.
Remember: Many REIT funds, like VNQ, distribute their assets based on the size of the company, which results in larger stocks having a greater influence over the fund’s performance. That’s not necessarily a bad thing. Larger companies tend to be more stable. Sometimes, those weighting systems result in still-modest allocations of 1% or 2% for even the largest stocks. And sometimes, the stocks in a sector can perform in lockstep to the point where not even perfectly even weight distribution would make a difference.
Related: 10 Monthly Dividend Stocks for Frequent, Regular Income
But the real estate sector is itself exposed to many different parts of the economy. And at least in the S&P 500, there is a high weighting concentration among the index’s biggest stocks.
Invesco’s RSPR gets around that by holding the same 31 REITs that you’ll find in the State Street Real Estate Select Sector SPDR ETF (XLRE), but equally weighting them at each rebalancing. That way, every REIT has the same chance to shine. You’re still getting exposure to Welltower, Prologis and Equinix, but you’re getting roughly the same exposure to Host Hotels & Resorts (HST), information management landlord Iron Mountain (IRM), home leasing REIT Invitation Homes (INVH), and others. Their weights will change over time as their stocks rise and fall, but every quarter, the fund will rebalance, resetting all their weights to the same level playing field.
Practically speaking, this has resulted in a lower yield than many REIT funds and somewhat mixed performance. RSPR has actually greatly outdone both its category average and Morningstar performance index over the trailing 10 years, but it has lagged across nearer-term time frames.
Invesco S&P 500 Equal Weight Real Estate ETF still deserves a spot among the market’s best REIT ETFs, but the decision to buy largely hinges on whether you want even exposure or want to let the sector’s biggest dogs do the most barking.
Related: 10 Best Schwab ETFs to Buy [Build Your Core for Cheap]
Dimensional Global Real Estate ETF
- Assets under management: $3.5 billion
- Dividend yield: 3.9%
- Expense ratio: 0.22%, or $2.20 per year on every $1,000 invested
- Morningstar Medalist rating: Silver
The final REIT ETF on this list, Dimensional Global Real Estate ETF (DFGR), broadens your real estate horizons to the rest of the world.
When it comes to geography, you’ll want to know two distinct terms: “international” and “global.” “International” means other countries but not the U.S., while “global” means other countries and the U.S. So Dimensional Global Real Estate ETF is specifically telling us that it owns both international and domestic REITs.
Unlike the other funds I’ve mentioned, Dimensional’s offering is actively managed. A four-member team has built a massive portfolio of roughly 440 holdings, split roughly 75/25 between the U.S. and the rest of the world. Practically speaking, that means you’re getting a lot of what you’ve already gotten above: Welltower, Prologis, and the like. But you’re also investing in Australia’s Goodman Group, U.K. logistics REIT Segro, Hong Kong-based Link REIT, and other overseas names.
Related: 6 Ways to Invest in Apartment Buildings [w/Minimal Effort!]
Because DFGR doesn’t splash much cash around outside of America, there are no massive weights in any one country. But top international exposure right now belongs to Australia (6%), Japan (5%), and the U.K. (3%).
This young fund launched in late 2022, so there’s not much of a track record, but it has topped its Morningstar category average over the trailing one- and three-year periods.
DFGR provides some geographic diversification compared to most REIT funds you’ll come across, it offers a high yield of nearly 4%, and being actively managed means the fund doesn’t have to blindly hold whatever an index commands. And you get all this for a reasonable 22 basis points in fees. That’s good enough to merit inclusion among our top REIT ETFs to buy.
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