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. REIT ETFs drastically underperformed the market in the past year. As of August 10, 2020, the benchmark FTSE Nareit All Equity REITs Index provided a 1-year trailing total return of -5.4% compared with 17.4% for the S&P 500.

Key Takeaways

  • REIT ETFs dramatically underperformed the broader market in the past year.
  • The ETFs with the best 1-year trailing total return are SRVR, INDS, and XLRE.
  • The top holdings of these ETFs are Equinix Inc., Duke Realty Corp., and American Tower Corp., respectively.

There are about 30 ETFs focused on the REIT universe, excluding leveraged and inverse ETFs as well as funds with less than $50 million in assets under management (AUM). The top performing REIT ETF in the past year is the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR). Below, we look below at the 3 best REIT ETFs as measured by 1-year trailing total returns. We note that one of these funds has provided negative total returns for the trailing 12 months, but this fund has nonetheless outperformed its other peers in the REIT ETF universe in the midst of recent market turmoil. Aside from the benchmark and S&P figures above, all numbers in this story are as of August 11, 2020.

Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)

  • 1-Year Trailing Total Returns: 19.5%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 1.57%
  • 3-Month Average Daily Trading Volume: 258,203
  • Assets Under Management: $837.0 million
  • Inception Date: May 15, 2018
  • Issuing Company: Pacer Financial

SRVR tracks the Benchmark Data & Infrastructure Real Estate SCTR Index, an index of U.S.-listed companies deriving at least 85% of revenue from real estate operations specifically in the data and infrastructure areas. SRVR is a multi-cap growth fund focused on North America. The ETF's top three holdings include Equinix Inc. (EQIX), a colocation space REIT; American Tower Corp. (AMT); and Crown Castle International Corp. (CCI). The latter two are wireless communications REITs.

Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)

  • 1-Year Trailing Total Returns: 13.9%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: 1.77%
  • 3-Month Average Daily Trading Volume: 30,483
  • Assets Under Management: $90.7 million
  • Inception Date: May 14, 2018
  • Issuing Company: Pacer Financial

INDS tracks the Benchmark Industrial Real Estate SCTR Index, an index of U.S.-listed companies deriving at least 85% of earnings or revenues from the industrial real estate sector. This multi-cap fund follows a blended investment strategy. The ETF's top three holdings are Duke Realty Corp. (DRE), which owns medical, industrial, and office buildings; Prologis Inc. (PLD), a REIT investing in logistics facilities; and Americold Realty Trust (COLD), a temperature-controlled warehousing company storing perishable goods.

Real Estate Select Sector SPDR Fund (XLRE)

  • 1-Year Trailing Total Returns: -2.1%
  • Expense Ratio: 0.13%
  • Annual Dividend Yield: 3.15%
  • 3-Month Average Daily Trading Volume: 5,551,961
  • Assets Under Management: $2.4 billion
  • Inception Date: October 7, 2015
  • Issuing Company: State Street SPDR

The Real Estate Select Sector SPDR Fund tracks the Real Estate Select Sector index, a market-cap-weighted, multi-cap index of 31 REITs and real estate stocks in the S&P 500 focused on the U.S. Its expense ratio is dramatically lower than INDS and SRVR and may be attractive to cost-conscious investors.  Currently, the top three holdings for XLRE include American Tower, Prologis, and Equinix.