Investing in real estate investment trusts (REITs) can be a smart move for protecting against inflation. However, selecting individual REITs can be overwhelming and risky. That's where REIT exchange-traded funds (ETFs) come in. These ETFs offer diversification and a wide range of benefits for investors.
Why Choose REIT ETFs?
In addition to the inflation protection that comes with REITs, investing in REIT ETFs allows you to diversify your portfolio and mitigate risks associated with stocks and bonds. Some ETFs on this list offer high income yields, while others provide international diversification or focus on specific sectors.
If you're looking for growth, sector-specific REIT ETFs can give you an advantage. For example, datacenter-focused REITs and industrial real estate developers are still promising strong growth, while office and healthcare REITs present value plays.
Growing Interest in REIT ETFs
Despite the stock market sell-off in 2022, investors are finding value and attractive investment options in REIT ETFs. Over the past three months, approximately $4 billion in net new funds have been invested in REIT ETFs, according to VettaFi (formerly ETF Database).
Let's explore some of the top REIT ETFs you can buy right now to gain diverse exposure to the world of REITs.
Vanguard Real Estate Index Fund (VNQ)
- Expense Ratio: 0.12%
- Current Price: $99.60
The Vanguard Real Estate Index Fund (VNQ) is the largest REIT ETF in the world, with over $82 billion in assets under management. It tracks the MSCI US Investable Market Real Estate 25/50 Index, providing broad exposure to the REIT asset class. The fund is passively managed with a low expense ratio of 0.12%. It offers a dividend yield of approximately 3%, significantly higher than the current 1.5% dividend yield of the S&P 500.
Schwab U.S. REIT ETF (SCHH)
- Expense Ratio: 0.07%
The Schwab U.S. REIT ETF (SCHH) is one of the largest and most diversified real estate ETFs, with over $6.3 billion in assets invested in more than 140 individual REITs. It tracks the Dow Jones Equity All REIT Capped Index, excluding mortgage REITs. With an expense ratio of 0.07%, it's a cost-effective option for accessing REITs. Investors can expect quarterly distributions with a current yield of approximately 3.3%.
Real Estate Select Sector SPDR Fund (XLRE)
- Expense Ratio: 0.1%
The Real Estate Select Sector SPDR Fund (XLRE) is one of the largest REIT ETFs, with over $5.4 billion in net assets. It offers exposure to the real estate sector of the S&P 500 Index. The fund has 30 holdings, comprising real estate management and development companies, as well as equity REITs. Mortgage REITs are excluded from the portfolio. XLRE has a low expense ratio of 0.1% and pays quarterly dividends with a yield of 2.8%.
Global X Super Dividend REIT ETF (SRET)
- Expense Ratio: 0.58%
The Global X Super Dividend REIT ETF (SRET) is an income-oriented ETF that provides high distribution yields and global diversification. It holds 29 of the highest yielding REITs in the world, with approximately 53% of its assets allocated to U.S. REITs. Developed Asia (Singapore REITs), Canada, and Australia make up the remaining portion of the portfolio. SRET pays distributions that yield 7.1% annually and has a reasonable expense ratio of 0.58%.
Hoya Capital High Dividend Yield ETF (RIET)
- Expense Ratio: 0.25%
The Hoya Capital High Dividend Yield ETF (RIET) is a recently launched REIT ETF that focuses on high dividend yield real estate equity securities. It invests around 90% of its assets in REIT common equity and includes preferred stock positions for additional income. The fund manager waived management fees for now, resulting in a reduced expense ratio of 0.25%. RIET offers a juicy dividend yield of 7.3% and holds top positions in companies like Simon Property Group and Starwood Property Trust.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
- Expense Ratio: 0.6%
The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF (SRVR) provides exposure to global developed market REITs and real estate companies in the data and infrastructure sector. The SRVR ETF tracks the Kelly Data Center & Tech Infrastructure Index and has over $1.2 billion in net assets. It offers internationally diversified portfolios, with about 80% of its assets invested in U.S. REITs. The top holdings include Crown Castle, American Tower, and Equinix.
iShares Residential and Multisector Real Estate ETF (REZ)
- Expense Ratio: 0.48%
The iShares Residential and Multisector Real Estate ETF (REZ) is managed by BlackRock and invests in U.S. residential, healthcare, and self-storage real estate equities. With over $1 billion in net assets, REZ provides direct access to the U.S. residential sector. The ETF has an expense ratio of 0.48% and pays quarterly distributions with a yield of approximately 1.8%. Top holdings include Public Storage, Welltower Inc., and AvalonBay Communities.
Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
- Expense Ratio: 0.6%
The Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) offers investors diversified access to industrial real estate economics. With assets under management over $320 million, the ETF has shown significant growth since its inception in 2018. INDS has an annual expense ratio of 0.6% and pays quarterly distributions with a yield of 1.3%. Despite a year-to-date decline of 22%, this ETF presents an opportunity for future capital gains.
Investing in REIT ETFs can be a smart move for investors looking for diversification, income, and growth potential. Consider these eight REIT ETFs to add to your portfolio and take advantage of the benefits they offer. Always do thorough research and consider your risk tolerance before making any investment decisions.
On the date of publication, Brian Paradza did not hold any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
