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. Though the financial returns may be lower than owning an entire building and pocketing all the rental income, there is less risk.
- REITs slightly outperformed the broader market over the past year.
- The ETFs with the best one-year trailing total return are NURE, REM, and MORT.
- The top holding of the first ETF is Sun Communities Inc., and the top holding of the second and third ETFs is Annaly Capital Management Inc.
The REIT ETF universe is comprised of about 33 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 slightly outperformed the broader market with a total return of 33.5% over the past 12 months compared to the S&P 500's total return of 31.4%, as of Aug. 27, 2021. The best performing REIT ETF, based on performance over the past year, is the Nuveen Short-Term REIT ETF (NURE). We examine the three best REIT ETFs below. All numbers below are as of Aug. 27, 2021.
- Performance Over One-Year: 58.3%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 2.25%
- Three-Month Average Daily Volume: 40,418
- Assets Under Management: $73.8 million
- Inception Date: Dec. 19, 2016
- Issuer: TIAA
NURE targets the Dow Jones U.S. Select Short-Term REIT Index. The index is comprised of U.S. exchanged-traded REITs that focus on apartment buildings, hotels, self-storage facilities, and other properties that typically have shorter lease terms compared with other sectors. Just under half of the fund's holdings are apartment REITs, followed by self-storage REITs and hotel REITs. The top holdings of NURE include Sun Communities Inc. (SUI), a REIT that acquires, operates, and develops manufactured home and RV communities; Mid-America Apartment Communities Inc. (MAA), an apartment REIT that owns, develops, and acquires properties in the U.S. Southeast, Midwest, and Texas; and Camden Property Trust (CPT), an apartment REIT.
- Performance Over One-Year: 48.3%
- Expense Ratio: 0.48%
- Annual Dividend Yield: 6.09%
- Three-Month Average Daily Volume: 563,551
- Assets Under Management: $1.5 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 those of many of its peers. The top holdings of REM include Annaly Capital Management Inc. (NLY), AGNC Investment Corp. (AGNC), and Starwood Property Trust Inc. (STWD), all of which are mortgage REITs.
- Performance Over One-Year: 47.2%
- Expense Ratio: 0.40%
- Annual Dividend Yield: 6.91%
- Three-Month Average Daily Volume: 146,815
- Assets Under Management: $317.1 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 the potential for both substantial returns and significant risk. Just like REM, the top holdings of MORT include Annaly Capital Management, AGNC Investment, and Starwood Property Trust.
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