Real estate exchange-traded funds (ETFs) hold baskets of securities in the real estate sector, providing investors with a less expensive way to invest in the industry compared to other options. These funds often focus specifically on real estate investment trusts (REITs), which are securitized portfolios of real estate properties. REITs offer investors income potential as well as the liquidity of traditional stocks. Some of the major names in the REIT space include Vornado Realty Trust (VNO) and Welltower Inc. (WELL). Investing in these and other REITs allows investors to receive dividend distributions. While the financial returns may be lower than owning an entire building and pocketing all the income, there is less risk.
- REITs underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are INDS, XLRE, and ICF.
- The top holdings of these ETFs are Prologis Inc., American Tower Corp., and Equinix Inc., respectively.
The REIT ETF universe is comprised of about 28 distinct ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). REITs, as measured by the FTSE NAREIT All Equity REITs Index, have dramatically underperformed the broader market with a total return of -13.9% over the past 12 months compared to the S&P 500's total return of 10.0%, as of November 2, 2020. The best-performing REIT ETF for Q1 2021, based on performance over the past year, is the Pacer Benchmark Industrial Real Estate SCTR ETF (INDS). We examine the 3 best REIT ETFs below. All numbers below are as of November 3, 2020.
- Performance over 1-Year: 3.3%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.99%
- 3-Month Average Daily Volume: 34,712
- Assets Under Management: $113.1 million
- Inception Date: May 14, 2018
- Issuer: Pacer Financial
INDS tracks the Benchmark Industrial Real Estate SCTR Index, which is composed of U.S.-listed equities that generate at least 85% of their business from industrial-related real estate operations. The ETF invests in industrial REITs focused on e-commerce distribution and logistics networks as well as self-storage facilities. It holds equities across the market-cap spectrum and follows a blended strategy, investing in a mix of both growth and value stocks. The fund's top three holdings include Prologis Inc. (PLD), an owner, operator, and developer of industrial real estate; Duke Realty Corp. (DRE), a REIT focused on industrial, office, and medical office properties; and Americold Realty Trust (COLD), an owner and operator of temperature-controlled warehouses.
- Performance over 1-Year: -7.9%
- Expense Ratio: 0.13%
- Annual Dividend Yield: 3.22%
- 3-Month Average Daily Volume: 4,026,170
- Assets Under Management: $2.0 billion
- Inception Date: October 7, 2015
- Issuer: State Street SPDR
XLRE tracks the Real Estate Select Sector Index, which seeks to represent the real estate sector of the S&P 500 Index. The ETF provides exposure to companies engaged in real estate management and development as well as non-mortgage REITs. It invests in U.S.-based real estate equities with varying market capitalizations and pursues a blended strategy of investing in both value and growth stocks. The fund's top three holdings include American Tower Corp. (AMT), a REIT that owns, operates, and develops multi-tenant communications real estate; Prologis; and Crown Castle International Corp. (CCI), a REIT that provides access to wireless infrastructure.
- Performance over 1-Year: -12.8%
- Expense Ratio: 0.34%
- Annual Dividend Yield: 2.72%
- 3-Month Average Daily Volume: 67,950
- Assets Under Management: $1.8 billion
- Inception Date: January 29, 2001
- Issuer: iShares
ICF tracks the Cohen & Steers Realty Majors Index, which consists of a little over 30 REITs that are mostly either mid- or large-cap equities. The ETF offers investors attractive income opportunities, since REITs are required to distribute at least 90% of their taxable income to shareholders. Specialized REITs make up about 39% of its holdings, while residential and industrial REITs comprise about 21% and 11%, respectively. ICF follows a blended strategy, investing in both value and growth stocks. The fund's top three holdings include Equinix Inc. (EQIX), a REIT focused on interconnected data centers; Prologis; and American Tower.