Exchange-traded funds (ETFs) that specialize in real estate investment trusts (REITs) can be an ideal play for individual investors: Without having to enter lengthy contractual relationships, take out mortgages or come up with significant capital, they can obtain broad exposure to diversified portfolios of properties quickly and inexpensively. Those looking for more exotic pastures might consider Canadian REIT ETFs, which first came into existence 20 years ago. In addition to the usual advantages, these funds are highly liquid, trading on the Toronto Stock Exchange (TSX), and they offer compelling yields, with distributions paid monthly.
This trio of Canadian REIT ETFs has all performed strongly in the last few years. All data is current as of January 2, 2020. NAV prices are in Canadian dollars.
- Canadian REIT ETFs can grant quick, inexpensive exposure to diversified portfolios of real estate holdings.
- Three leading ETFs are the iShares S&P/TSX Capped REIT Index Fund, the BMO Equal Weight REITs Index ETF, and the Vanguard FTSE Canadian Capped REIT Index ETF.
iShares S&P/TSX Capped REIT Index ETF
The iShares S&P/TSX Capped REIT Index ETF (XRE.TO) is an industry leader that aims to generate long-term capital growth by tracking the S&P/TSX Capped REIT Index. XRE provides exposure to approximately 16 REITs across several subsectors: 30.38% of the portfolio's market value is in retail properties (the largest category), 26.52% in residential properties, 16.46% in diversified REITs, 12.83% in commercial/office space and 10.74% in industrial.
XRE has claimed the lion’s share of assets under management held by funds of its kind, as its AUM stood at $1.48 billion. This figure dwarfs the assets of its next-largest competitor, which has less than $400 million in AUM. In addition to having greater assets than its competitors, XRE has notably higher tenure, as it has been around since 2002—eight years longer than any other Canadian REIT ETF. Its total return since inception: 10.36%—precisely that of its benchmark, minus its management expense ratio of 0.61%.
Trading around $19.50 for a yield of 3.93%, XRE has a year-to-date (YTD) daily total return of 20.85%, and a three-year daily total return of 11.76%. Its distribution yield is 14.02%.
BMO Equal Weight REITs Index ETF
The BMO Equal Weight REITs Index ETF (ZRE.TO) aims to produce growth by replicating the price movements of the Solactive Equal Weight Canada REIT Index. By harnessing an equal-weighting strategy, ZRE attempts to reduce risks tied to individual securities.
Founded in 2010, ZRE has holdings in 23 REITs, which invest in everything from large-cap companies like Milestone Apartments REIT (MST-UN.TO) to also smaller real estate firms such as Crombie REIT (CRR-UN.TO). The ETF invests in these holdings fairly evenly, as the largest weighting of a particular holding is 5.09%.
In addition to spreading its assets across a wide range of REITs, ZRE has exposure to six industries, which include diversified, office, residential, industrial, retail and health care. Sub-sector-wise, it's dominated by retail and residential properties (22% of the portfolio each), and diversified and industrial REITs (about 18% each).
ZRE has AUM of $651.93 million, and it's trading around $24, for a distribution yield of 4.01%. Its YTD daily total return is 26.48% and its three-year return, 14.25%. it has an expense ratio of 0.61%.
Vanguard FTSE Canadian Capped REIT Index ETF
The Vanguard FTSE Canadian Capped REIT Index ETF (VRE.TO) grants exposure to small, mid and large-cap Canadian real estate companies and does so at a low cost, even for ETFs—it has an expense ratio of 0.35%. VRE follows the FTSE Canada All Cap Real Estate Capped 25% Index, which has holdings in a wide range of Canadian real estate firms.
Since its inception in February 2012, VRE has accumulated AUM of $246.23 million. These assets are currently spread across 18 REITs, with the top 10 accounting for 77.2% of the fund’s assets. In terms of major weightings, industrial and office REITs make up one-third of the portfolio (33%), followed by residential (23.1%) and retail (19.2%).
Using the stock’s closing price of $34.31, the fund has a distribution yield of 3.16%. Its YTD daily total return is 18.94% and the three-year return is 10.03%.