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 slightly underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are MORT, REM, and ROOF.
- The top holding of the first two funds is Annaly Capital Management Inc., and the top holding of the third fund is Terreno Realty Corp.
The REIT ETF universe is comprised of about 32 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 underperformed the broader market with a total return of 44.5% over the past 12 months compared to the S&P 500's total return of 47.8%, as of May 17, 2021. The best performing REIT ETF, based on performance over the past year, is the VanEck Vectors Mortgage REIT Income ETF (MORT). We examine the 3 best REIT ETFs below. All numbers below are as of May 18, 2021.
- Performance over 1-Year: 100.4%
- Expense Ratio: 0.40%
- Annual Dividend Yield: 6.90%
- 3-Month Average Daily Volume: 183,676
- Assets Under Management: $306.5 million
- Inception Date: Aug. 16, 2011
- Issuer: Van Eck Associates Corp.
MORT is a multi-cap fund targeting the MVIS US Mortgage REITs Index. The index aims to track the overall performance of U.S. mortgage REITs. Mortgage REITs differ from traditional REITs in that they don't own real estate, but rather generate revenue from issuing mortgages and acquiring loans or mortgage-backed securities. As such, these REITs carry both potential for substantial returns and significant risk. The top holdings of MORT include Annaly Capital Management Inc. (NLY), AGNC Investment Corp. (AGNC), and Starwood Property Trust Inc. (STWD), all of which are mortgage REITs.
- Performance over 1-Year: 80.6%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 6.12%
- 3-Month Average Daily Volume: 712,594
- Assets Under Management: $1.6 billion
- Inception Date: May 1, 2007
- Issuer: BlackRock Financial Management
REM is a multi-cap fund that targets the FTSE Nareit All Mortgage Capped Index. The index aims to track the performance of U.S. residential and commercial real estate mortgages. As such, REM does not focus exclusively on REITs, but also includes other domestic real estate stocks and financial services names. REM's expense ratio is higher than many of its peers. The top holdings of REM include Annaly Capital Management Inc., AGNC Investment Corp., and Starwood Property Trust Inc.
- Performance over 1-Year: 60.8%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 3.20%
- 3-Month Average Daily Volume: 8,181
- Assets Under Management: $51.4 million
- Inception Date: June 14, 2011
- Issuer: New York Life
ROOF targets the IQ U.S. Real Estate Small Cap Index. The index is float-adjusted and market-cap-weighted and aims to track the performance of small-cap U.S. real estate companies. ROOF maintains a portfolio of different categories of REITs, including specialized, retail, mortgage, hotel, diversified, office, and residential. The fund focuses on small-cap REITs, providing different exposure to investors compared to other REIT ETFs. The top holdings for ROOF include Terreno Realty Corp. (TRNO), an industrial real estate company; class A shares of QTS Realty Trust Inc. (QTS), a REIT focused on data center infrastructure; and Physicians Realty Trust (DOC), a healthcare real estate company.
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