Best REIT ETFs with Reliable Returns
Best REIT ETFs with Reliable Returns
Investors looking for consistent dividend income and the potential for capital appreciation over time often turn to real estate investment trusts, or REITs. REITs are one of the most reliable income-generating asset classes you can own. They invest in income-producing commercial and residential real estate, or interest-bearing commercial and residential mortgages. Because REITs are required by law to distribute at least 90% of taxable income back to shareholders as dividends, investors can count on a steady stream of income from their investments. Further, when the properties or mortgages held by a REIT increase in value, the share price of a REIT can go up as well.
One of the most popular, convenient and cost-effective ways to gain exposure to REITs is by buying exchange-traded funds, or ETFs, that focus on REIT investing. REIT ETFs offer professional management, meaning the individual stocks in a fund's portfolio are selected by experts in real estate investing or are part of a credible and legitimate REIT index. ETFs can also provide a high level of diversification, which can be very important when the markets are choppy and unpredictable. Many REIT ETFs own dozens or even several hundred securities. Most retail investors are unable to achieve that kind of diversification on their own.
The following list highlights seven of the best REIT ETFs available today. It includes equity REIT funds, which invest in REITs that own and operate properties directly, and mortgage REIT, or mREIT, funds, which hold mortgages and mortgage-backed bonds. In other words, there should be something on this list for every kind of REIT ETF investor, especially those looking for superior dividend income and the real potential for meaningful growth over the long term:
REIT ETF
iShares Core U.S. REIT ETF (ticker: USRT)
The Real Estate Select Sector SPDR Fund (XLRE)
Invesco Active U.S. Real Estate Fund (PSR)
SPDR Dow Jones REIT ETF (RWR)
iShares Mortgage Real Estate Capped ETF (REM)
SPDR Dow Jones International Real Estate ETF (RWX)
iShares Cohen & Steers REIT ETF (ICF)
One of the most popular, convenient and cost-effective ways to gain exposure to REITs is by buying exchange-traded funds, or ETFs, that focus on REIT investing. REIT ETFs offer professional management, meaning the individual stocks in a fund's portfolio are selected by experts in real estate investing or are part of a credible and legitimate REIT index. ETFs can also provide a high level of diversification, which can be very important when the markets are choppy and unpredictable. Many REIT ETFs own dozens or even several hundred securities. Most retail investors are unable to achieve that kind of diversification on their own.
The following list highlights seven of the best REIT ETFs available today. It includes equity REIT funds, which invest in REITs that own and operate properties directly, and mortgage REIT, or mREIT, funds, which hold mortgages and mortgage-backed bonds. In other words, there should be something on this list for every kind of REIT ETF investor, especially those looking for superior dividend income and the real potential for meaningful growth over the long term:
REIT ETF
iShares Core U.S. REIT ETF (ticker: USRT)
The Real Estate Select Sector SPDR Fund (XLRE)
Invesco Active U.S. Real Estate Fund (PSR)
SPDR Dow Jones REIT ETF (RWR)
iShares Mortgage Real Estate Capped ETF (REM)
SPDR Dow Jones International Real Estate ETF (RWX)
iShares Cohen & Steers REIT ETF (ICF)
- Best REIT ETFs with Reliable Returns
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Re: Best REIT ETFs with Reliable Returns
iShares Core U.S. REIT ETF (USRT)
A core holding is one that anchors a portfolio. It should be a sound investment that any investor would be happy to hold for the long run. When it comes to REIT ETF investing, USRT fits that definition.
USRT has net assets of $2.9 billion and holds over 130 individual REITs. This popular fund tracks the FTSE Nareit Equity REIT Index. That benchmark was designed to represent the whole publicly traded equity REIT universe. Equity REITs, as mentioned above, are companies that directly own income-producing property. USRT is a low-cost fund with an expense ratio of just 0.08%.
The iShares family of ETFs is owned by asset management giant Blackrock Inc. (BLK). iShares ETFs are well regarded by both institutional and retail investors.
Forward yield: 2.7%
A core holding is one that anchors a portfolio. It should be a sound investment that any investor would be happy to hold for the long run. When it comes to REIT ETF investing, USRT fits that definition.
USRT has net assets of $2.9 billion and holds over 130 individual REITs. This popular fund tracks the FTSE Nareit Equity REIT Index. That benchmark was designed to represent the whole publicly traded equity REIT universe. Equity REITs, as mentioned above, are companies that directly own income-producing property. USRT is a low-cost fund with an expense ratio of just 0.08%.
The iShares family of ETFs is owned by asset management giant Blackrock Inc. (BLK). iShares ETFs are well regarded by both institutional and retail investors.
Forward yield: 2.7%
Re: Best REIT ETFs with Reliable Returns
The Real Estate Select Sector SPDR Fund (XLRE)
XLRE is a popular, $7.5 billion REIT ETF in the SPDR family of funds operated by S&P Global Inc. (SPGI). The fund has a unique focus on real estate development, and efficient and profitable long-term property management.
XLRE follows the S&P Real Estate Sector Index and should mirror that benchmark's performance minus the fund's 0.08% expense ratio.
SPDR recommends XLRE to investors who want to make a tactical allocation to the real estate sector of the S&P 500. Like the previous fund, XLRE is an equity REIT; the portfolio does not include mREITs.
About 28% of XLRE's assets are in the communications and data center industries – two of the hottest sectors of our economy right now. That fact could make this ETF a very timely investment.
Forward yield: 3.2%
XLRE is a popular, $7.5 billion REIT ETF in the SPDR family of funds operated by S&P Global Inc. (SPGI). The fund has a unique focus on real estate development, and efficient and profitable long-term property management.
XLRE follows the S&P Real Estate Sector Index and should mirror that benchmark's performance minus the fund's 0.08% expense ratio.
SPDR recommends XLRE to investors who want to make a tactical allocation to the real estate sector of the S&P 500. Like the previous fund, XLRE is an equity REIT; the portfolio does not include mREITs.
About 28% of XLRE's assets are in the communications and data center industries – two of the hottest sectors of our economy right now. That fact could make this ETF a very timely investment.
Forward yield: 3.2%
Re: Best REIT ETFs with Reliable Returns
Invesco Active U.S. Real Estate Fund (PSR)
Two important elements make PSR stand out from other REIT ETFs on this list. The first is that this fund is actively managed. It selects REITs for its portfolio from the FTSE NAREIT All Equity REIT Index, but it does not attempt to replicate the benchmark. Secondly, PSR is a quantitative fund that follows a strict rules-based investment method.
The PSR portfolio managers select REITs for the fund using powerful artificial intelligence software and detailed statistical models.
Fund managers use formulas designed to find REITs with the best risk-adjusted potential for reliable dividend income and long-term capital appreciation. Every stock in the portfolio is reevaluated monthly to make sure it still meets the strict quantitative criteria of the fund.
PSR has net assets of $63.7 million and an expense ratio of 0.35%.
Forward yield: 2.9%
Two important elements make PSR stand out from other REIT ETFs on this list. The first is that this fund is actively managed. It selects REITs for its portfolio from the FTSE NAREIT All Equity REIT Index, but it does not attempt to replicate the benchmark. Secondly, PSR is a quantitative fund that follows a strict rules-based investment method.
The PSR portfolio managers select REITs for the fund using powerful artificial intelligence software and detailed statistical models.
Fund managers use formulas designed to find REITs with the best risk-adjusted potential for reliable dividend income and long-term capital appreciation. Every stock in the portfolio is reevaluated monthly to make sure it still meets the strict quantitative criteria of the fund.
PSR has net assets of $63.7 million and an expense ratio of 0.35%.
Forward yield: 2.9%
Re: Best REIT ETFs with Reliable Returns
SPDR Dow Jones REIT ETF (RWR)
RWR is a $1.8 billion SPDR fund designed to track the performance of the Dow Jones U.S. Select REIT Capped Index. This ETF is reasonably priced, with an expense ratio of 0.25%.
RWR contains 102 individual REITs from both equity REIT and the mREIT categories, providing investors with a higher level of diversification than specialized REIT ETFs.
RWR was designed to be a faithful representation of the domestic REIT market. The fund screens out REITs that derive an inordinate amount of value from factors other than the actual price of the underlying real estate. This is done to make RWR more of a pure play on U.S. commercial real estate valuations.
Forward yield: 3.6%
RWR is a $1.8 billion SPDR fund designed to track the performance of the Dow Jones U.S. Select REIT Capped Index. This ETF is reasonably priced, with an expense ratio of 0.25%.
RWR contains 102 individual REITs from both equity REIT and the mREIT categories, providing investors with a higher level of diversification than specialized REIT ETFs.
RWR was designed to be a faithful representation of the domestic REIT market. The fund screens out REITs that derive an inordinate amount of value from factors other than the actual price of the underlying real estate. This is done to make RWR more of a pure play on U.S. commercial real estate valuations.
Forward yield: 3.6%
Re: Best REIT ETFs with Reliable Returns
iShares Mortgage Real Estate Capped ETF (REM)
REM is an mREIT index fund with an exceptional dividend yield. The $667 million fund mirrors the FTSE Nareit All Mortgage Capped Index. REM is suitable for investors looking for dependable, high income and strategic exposure to domestic residential and commercial mortgage bonds.
There are only 33 holdings in the portfolio, so it is not appropriate as a core holding as it lacks comprehensive diversification.
The top five mREITs in the portfolio are Annaly Capital Management Inc. (NLY), AGNC Investment Corp. (AGNC), Starwood Property Trust Inc. (STWD), Rithm Capital Corp. (RITM) and Blackstone Mortgage Trust Inc. (BXMT). Those five stocks represent about 52% of the fund's assets.
Forward yield: 8.7%
REM is an mREIT index fund with an exceptional dividend yield. The $667 million fund mirrors the FTSE Nareit All Mortgage Capped Index. REM is suitable for investors looking for dependable, high income and strategic exposure to domestic residential and commercial mortgage bonds.
There are only 33 holdings in the portfolio, so it is not appropriate as a core holding as it lacks comprehensive diversification.
The top five mREITs in the portfolio are Annaly Capital Management Inc. (NLY), AGNC Investment Corp. (AGNC), Starwood Property Trust Inc. (STWD), Rithm Capital Corp. (RITM) and Blackstone Mortgage Trust Inc. (BXMT). Those five stocks represent about 52% of the fund's assets.
Forward yield: 8.7%
Re: Best REIT ETFs with Reliable Returns
SPDR Dow Jones International Real Estate ETF (RWX)
RWX is the most aggressive ETF on this list. The fund was designed to replicate the performance of the Dow Jones Global ex-U.S. Select Real Estate Securities Index, which is a benchmark made up of REITs based outside the U.S.
RWX has net assets of $244 million. In addition to the inherent risks associated with global investing, investors should expect a high level of trading within the portfolio. The fund's expense ratio of 0.59% is also relatively high, especially compared to other index funds.
RWX is an equity REIT fund. The 123 holdings do not include mREITs or hybrid REITs – REITs that own both properties and mortgages.
Forward yield: 4.1%
RWX is the most aggressive ETF on this list. The fund was designed to replicate the performance of the Dow Jones Global ex-U.S. Select Real Estate Securities Index, which is a benchmark made up of REITs based outside the U.S.
RWX has net assets of $244 million. In addition to the inherent risks associated with global investing, investors should expect a high level of trading within the portfolio. The fund's expense ratio of 0.59% is also relatively high, especially compared to other index funds.
RWX is an equity REIT fund. The 123 holdings do not include mREITs or hybrid REITs – REITs that own both properties and mortgages.
Forward yield: 4.1%
Re: Best REIT ETFs with Reliable Returns
iShares Cohen & Steers REIT ETF (ICF)
New York-based Cohen & Steers is one of the most respected names in real estate. The firm has specialized in real estate and REIT investing since its founding in 1986.
ICF is an index ETF with over $2 billion in net assets. The fund mirrors the Cohen & Steers Realty Majors Index. That benchmark was designed to reflect the performance of large-cap, domestic REITs. The fund focuses on large REITs that are leaders in their respective asset classes and have a substantial reach and a wide market presence.
ICF is the right ETF for investors seeking exposure to prominent REITs that are dominant in their industries. The fund has an expense ratio of 0.33%.
Forward yield: 2.5%
New York-based Cohen & Steers is one of the most respected names in real estate. The firm has specialized in real estate and REIT investing since its founding in 1986.
ICF is an index ETF with over $2 billion in net assets. The fund mirrors the Cohen & Steers Realty Majors Index. That benchmark was designed to reflect the performance of large-cap, domestic REITs. The fund focuses on large REITs that are leaders in their respective asset classes and have a substantial reach and a wide market presence.
ICF is the right ETF for investors seeking exposure to prominent REITs that are dominant in their industries. The fund has an expense ratio of 0.33%.
Forward yield: 2.5%