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 dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are INDS, SRVR, and VRAI.
- The top holdings of these ETFs are Duke Realty Corp, Equinix Inc., and Delek US Holdings Inc., respectively.
The REIT ETF universe is comprised of about 30 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 -8.2% over the past 12 months compared to the S&P 500's total return of 18.4%, as of February 17, 2021. The best-performing REIT ETF, 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 February 17, 2021.
- Performance over 1-Year: 6.1%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.61%
- 3-Month Average Daily Volume: 38,800
- Assets Under Management: $146.9 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 Duke Realty Corp. (DRE), a REIT focused on industrial, office, and medical office properties; Prologis Inc. (PLD), an owner, operator, and developer of industrial real estate; and Americold Realty Trust (COLD), an owner and operator of temperature-controlled warehouses.
- Performance over 1-Year: 1.9%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 1.54%
- 3-Month Average Daily Volume: 282,655
- Assets Under Management: $1.1 billion
- Inception Date: May 15, 2018
- Issuer: Pacer Financial
SRVR is a multi-cap growth fund targeting the Benchmark Data & Infrastructure Real Estate SCTR Index. The fund focuses on data and infrastructure REITs and C-Corps. SRVR holds approximately 24 stocks in its portfolio, with the top 10 holdings accounting for about three quarters of invested assets. The fund's top three holdings include Equinix Inc. (EQIX), a REIT focused on interconnected data centers; American Tower Corp. (AMT), a REIT that owns, operates, and develops multi-tenant communications real estate; and Crown Castle International Corp. (CCI), a REIT that provides access to wireless infrastructure.
- Performance over 1-Year: 0.2%
- Expense Ratio: 0.55%
- Annual Dividend Yield: 3.72%
- 3-Month Average Daily Volume: 11,710
- Assets Under Management: $123.9 million
- Inception Date: February 7, 2019
- Issuer: Virtus
VRAI is a multi-cap blended fund that targets the Indxx Real Asset Income Index. The index includes natural resources, real estate, and infrastructure stocks that have a track record of dividend and income growth. Unlike many other real estate-focused fund, VRAI does not directly invest in hard assets or commodity instruments. Instead, it holds stocks in an effort to realize equity growth potential. The top stock holdings of VRAI include Delek US Holdings Inc. (DK), a diversified downstream energy company; Delek Logistics Partners LP (DKL), a crude oil logistics services provider; and Marathon Petroleum Corp. (MPC), a petroleum refining, marketing, and transportation company.
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