Real Estate Investment Trust Exchange Traded Fund
Real estate is the oldest asset class. Along with stocks and bonds, it is one of the most commonly identified investment options identified by investors. REITs allow investors flexibility in gaining exposure to the real estate assets class exposure.
Current low interest rate environment has been favorable for REITs. Even with expected rise in rates and performance shouldn’t be impacted too badly from raise in rates.
REIT ETF List
Best REIT ETF
Vanguard REIT ETF (VNQ) is the largest listed US REIT ETF measured by total asset under management. It is a typical Vanguard product. Low cost, simple and one of the best option for passive investors that would like real estate exposure in the portfolio.
VNQ seek to track the performance of the MSCI US REIT Index which includes the largest REITs listed on the US exchange. The advantage of Vanguard REIT ETF is its low cost (at around 0.10%) and transparency in knowing what you own. Stock weights in the index are based on market capitalization adjusted for the follow factors:
- Free float to be adjust based on the availability of stocks for investors.
- Same criteria used to assess stocks in the broader market MSCI Index.
- Regular reviews to ensure companies still meet criteria to be included in the index inline with ongoing corporate events.
Vanguard REIT ETF Performance
VNQ includes up to 130 US REITs. Buying VNQ is essentially owning the market. The sector breakdown of the fund below reinforce the diversification benefits as no specific REIT sector accounting for more than 30% of the ETF. Note VNQ owns REIT with underlying real estate assets rather financial assets like MREITs.
Retail REIT account for the largest portion of VNQ followed by Office and then Residential REITs.
Top 10 position of VNQ accounts for just under 40% of the ETF.
|1||Simon Property Group Inc.|
|3||Health Care REIT Inc.|
|6||AvalonBay Communities Inc.|
|8||Boston Properties Inc.|
|10||Vornado Realty Trust|
The low cost and broad diversification of VNQ make it one of the best REIT ETF option for long term investors.
SPDR Dow Jones REIT ETF (RWR) tracks Dow Jones U.S. Select REIT Index which has around 90 REITs. Similar to VNQ it is market capitalization weighted (with adjustment for free float). On the surface RWR is very similar to VNQ.
The breakdown analysis of RWR shows it has exposure beyond standard commercial real estate REIT. For example it has significantly lower commercial real estate sectors like office and industrial assets which is offset by Hotel and other specialty sector. Interestingly it has limited exposure to data centre REITs.
Schwab U.S. REIT ETF (SCHH) is a lower cost version of the above REIT with fees just under 0.10% of AUM. SCHH also tracks Dow Jones US Select REIT Index
iShare REIT ETFs
As Vanguard above took the trophy for the best REIT ETF. iShares has a number REIT ETFs each designed to differentiate and aimed at specific sub group of investor and corresponding risk profile.
iShares Dow Jones US Real Estate Index Fund (IYR) is the second largest REIT ETF from the list above. Similar to VNQ it is designed as the broader REIT market index with over 1 10 REIT stocks in the fund. One should note however that total expenses is at around 0.45% vs 0.10% charged by VNQ.
Aside from investing in listed REITs. It is also important to note that 5% of the portfolio include real estate development companies.
Investors that are looking for concentrated bets on REITs can use iShares Cohen & Steers Realty Majors Index Fund (ICF). Unlike VNQ and IYR which has more than 100 REITs in the ETF. ICF aim to target REITs that are dominant in their respective sector. The goal of designing an ETF that only owns the best in their respective sector follows the idea of buying only the winners which more likely will outperform the sector.
Further up the portfolio concentration curve is the iShares Real Estate 50 Index Fund (FTY) which only include 50 of the largest listed REITs.
Similarly, for those that want to take specific REIT sub sector. iShares Residential Index Fund (REZ). REZ includes REIT stocks with direct residential exposure and is a sector specific REIT.
Small Cap REIT ETFs
PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY) is a smart beta ETF. Traditional ETF weights stocks in the fund by market capitalization. Smart Beta ETFs uses factor or specific criteria aside from choosing companies because they are the biggest. KBWY uses a specific dividend yield based methodology in selecting the REITs to be included in the fund. The yield criteria ensures that KBWY has a specific yield target and it is aimed towards income focused investors.
It should be noted that the stocks it applies the criteria are mostly small and mid cap REITs with total holdings at around 30 to 40 REITs. The number of holdings do provide diversification benefits and dividend yield is at least 100 basis points spread higher than the large cap REIT ETFs listed above.
IQ US Real Estate Small Cap ETF (ROOF) also aim to provide completeness of portfolio REIT coverage by providing exposure to small cap REITs. It has around 60 holdings so theoretically a more diversified fund and dividend yield is on par with KBWY.
Leverage REIT ETF
Using leverage REIT ETF can enhance returns as well as magnify losses. Currently Direxion Daily Real Estate Bull 3x ETF (DRN) and ProShares Ultra Real Estate (URE) provides 3x and 2x Leverage for REIT ETF investors.
For investors taking a leverage position, detail review of the underlying index is important to ensure the leverage ETF provide the required exposure. DRN aim to provide 3x the daily return of the MSCI REIT Index while URE tracks the 2x daily return of the Dow Jones Real Estate Index.
Inverse REIT ETF
Similarly to 3x Leverage REIT ETF DRN. Direxion also has a inverse leverage ETF that tracks 3x the inverse return of the MSCI REIT Index. Bearish investors can use Direxion Daily Real Estate Bear 3x ETF if they have a negative view on the sector to limit risk from shorting individual REIT stocks.
Largest Listed REIT
For Investors that want direct exposure to REITs rather through using REIT ETFs. Below is the list of largest REITs.
|SIMON PROPERTY GROUP REIT INC||SPG|
|AMERICAN TOWER REIT CORP||AMT|
|PUBLIC STORAGE REIT||PSA|
|EQUITY RESIDENTIAL REIT||EQR|
|CROWN CASTLE INTERNATIONAL REIT CO||CCI|
|HEALTH CARE REIT INC||HCN|
|AVALONBAY COMMUNITIES REIT INC||AVB|
|PROLOGIS REIT INC||PLD|
|BOSTON PROPERTIES REIT INC||BXP|
|VENTAS REIT INC||VTR|
|HCP REIT INC||HCP|
|VORNADO REALTY TRUST REIT||VNO|
|GENERAL GROWTH PROPERTIES REIT INC||GGP|
|HOST HOTELS & RESORTS REIT INC||HST|
|ESSEX PROPERTY TRUST REIT INC||ESS|
|SL GREEN REALTY REIT CORP||SLG|
|REALTY INCOME REIT CORP||O|
|KIMCO REALTY REIT CORP||KIM|
|CBRE GROUP INC||CBG|
|FEDERAL REALTY INVESTMENT TRUST RE||FRT|
|ANNALY CAPITAL MANAGEMENT REIT INC||NLY|
|AMERICAN REALTY CAPITAL PROPERTIES||ARCP|
|DIGITAL REALTY TRUST REIT INC TRUS||DLR|
|PLUM CREEK TIMBER COMPANY REIT INC||PCL|
|JONES LANG LASALLE INC.||JLL|
|AMERICAN CAPITAL AGENCY REIT CORP||AGNC|
|DUKE REALTY REIT CORP||DRE|
|EXTRA SPACE STORAGE INC.||EXR|
|ALEXANDRIA REAL ESTATE EQUITIES IN||ARE|
|IRON MOUNTAIN INC||IRM|
|CAMDEN PROPERTY TRUST REIT||CPT|
|REALOGY HOLDINGS CORP.||RLGY|
|W. P. CAREY REIT INC||WPC|
|KILROY REALTY CORP.||KRC|
|OMEGA HEALTHCARE INVESTORS REIT IN||OHI|
|REGENCY CENTERS REIT CORP||REG|
|APARTMENT INVESTMENT & MANAGEMENT||AIV|
|MID-AMERICA APARTMENT COMMUNITIES||MAA|
|HOWARD HUGHES CORP.||HHC|
|NATIONAL RETAIL PROPERTIES INC.||NNN|
|STARWOOD PROPERTY TRUST REIT INC||STWD|
|LIBERTY PROPERTY REIT TRUST||LPT|
|SENIOR HOUSING PROPERTIES TRUST RE||SNH|
|SPIRIT REALTY CAPITAL REIT INC||SRC|
|LAMAR ADVERTISING COMPANY ORD CLAS||LAMR|
|AMERICAN CAMPUS COMMUNITIES INC.||ACC|
|CORRECTIONS CORPORATION OF AMERICA||CXW|
|NORTHSTAR REALTY FINANCE REIT CORP||NRF|
|BIOMED REALTY TRUST REIT INC||BMR|
|HOSPITALITY PROPERTIES TRUST REIT||HPT|
|LASALLE HOTEL PROPERTIES||LHO|
|EQUITY LIFESTYLE PROPERTIES INC.||ELS|
|TAUBMAN CENTERS REIT INC||TCO|
|FOREST CITY ENTERPRISES INC. CL A||FCE.A|
|HIGHWOODS PROPERTIES INC.||HIW|
|RLJ LODGING TRUST REIT||RLJ|
|OUTFRONT MEDIA INC||OUT|
|DOUGLAS EMMETT INC.||DEI|
|WEINGARTEN REALTY INVESTORS REIT||WRI|
|HOME PROPERTIES INC.||HME|
|TWO HARBORS INVESTMENT REIT CORP||TWO|
|RETAIL PROPERTIES OF AMERICA REIT||RPAI|
|HEALTHCARE TRUST OF AMERICA REIT C||HTA|
|SUNSTONE HOTEL INVESTORS INC.||SHO|
|EQUITY COMMONWEALTH REIT||EQC|
|STRATEGIC HOTELS & RESORTS INC.||BEE|
|RAYONIER REIT INC||RYN|
|COLUMBIA PROPERTY REIT INC TRUST||CXP|
|GAMING AND LEISURE PROPERTIES REIT||GLPI|
|SOVRAN SELF STORAGE INC.||SSS|
|CBL & ASSOCIATES PROPERTIES INC.||CBL|
|TANGER FACTORY OUTLET CENTERS INC.||SKT|
|PEBBLEBROOK HOTEL TRUST REIT||PEB|
|SUN COMMUNITIES INC.||SUI|
|GEO GROUP REIT INC||GEO|
|CHIMERA INVESTMENT CORP||CIM|
|RYMAN HOSPITALITY PROPERTIES REIT||RHP|
|MEDICAL PROPERTIES TRUST REIT INC||MPW|
|POST PROPERTIES INC.||PPS|
|DCT INDUSTRIAL TRUST REIT INC||DCT|
|WP GLIMCHER INC||WPG|
|MFA FINANCIAL INC.||MFA|
|PIEDMONT OFFICE REALTY TRUST REIT||PDM|
|COLONY FINANCIAL INC.||CLNY|
|DIAMONDROCK HOSPITALITY CO.||DRH|
|BRANDYWINE REALTY TRUST REIT||BDN|
|HEALTHCARE REALTY TRUST REIT INC||HR|
|PARAMOUNT GROUP REIT INC||PGRE|
|CORPORATE OFFICE PROPERTIES TRUST||OFC|
|XENIA HOTELS RESORTS REIT INC||XHR|
|BLK CSH FND TREASURY SL AGENCY||BLKFDS|
|AMERICAN HOMES RENT REIT CLASS A||AMH|
|KITE REALTY GROUP TRUST REIT||KRG|
|COUSINS PROPERTIES REIT INC||CUZ|
|DUPONT FABROS TECHNOLOGY INC.||DFT|
|LEXINGTON REALTY TRUST REIT||LXP|
|URBAN EDGE PROPERTIES||UE|
|ALEXANDER & BALDWIN INC.||ALEX|
|INVESCO MORTGAGE CAPITAL INC.||IVR|
|EASTGROUP PROPERTIES INC.||EGP|
|WASHINGTON REAL ESTATE INVESTMENT||WRE|
|HATTERAS FINANCIAL CORP.||HTS|
|MACK-CALI REALTY REIT CORP||CLI|
|REDWOOD TRUST REIT INC||RWT|
|CYS INVESTMENTS INC||CYS|
|ST. JOE CO.||JOE|
|ARMOUR RESIDENTIAL REIT INC.||ARR|