Investing in real estate can be a lucrative endeavor, but it often comes with a lot of responsibilities and research. However, there is a simpler way to gain exposure to the real estate market without the hassle - through Real Estate Trust (REIT) ETFs. In this article, we will explore the top REIT ETFs available in Canada and why they are worth considering for your investment portfolio.
What are REIT ETFs and Why Invest in Them?
Firstly, let's understand what REIT ETFs are and why they are an attractive investment option. ETFs, or exchange-traded funds, are investment products designed to track the performance of a specific index. In the case of REIT ETFs, they are linked to the real estate trust market.
Unlike investing in a single REIT, REIT ETFs offer the advantage of diversifying your investment across a portfolio of REITs. This diversification allows you to mitigate risks and gain exposure to different sectors within the real estate market simultaneously.
REIT ETFs are particularly appealing for investors seeking a low-cost, diversified portfolio. They offer a professionally managed selection of some of the best REITs in Canada, making them an excellent option for both experienced and novice investors.
REITs vs. REIT ETFs
Before delving deeper into the topic, let's differentiate between REITs and REIT ETFs. A real estate trust (REIT) is a company that owns, operates, or finances income-generating properties. These properties can range from residential buildings to commercial spaces.
On the other hand, a REIT ETF allows you to invest in a diversified portfolio of REITs. Instead of choosing a single REIT, you gain exposure to a mix of residential, industrial, retail, and healthcare real estate, among others. This diversification helps reduce the impact of market fluctuations within a specific sector.
While REITs are suitable for investors looking to focus on a specific real estate sector, REIT ETFs provide the advantage of broader market exposure and risk reduction.
What Makes a Good REIT ETF?
When considering Canadian REIT ETFs, keep the following factors in mind to ensure you choose a good investment:
Low Management Fee
Look for REIT ETFs with lower management expense ratios (MERs). The lower the MER, the fewer fees that eat into your investment earnings. While MERs may vary, aim for a REIT ETF with a reasonable fee that justifies its performance.
Diversification
A good REIT ETF should offer diversification in terms of the number and size of holdings, balanced asset allocation, and representation across various real estate sectors. The more diversified the ETF, the more resilient your investment will be in the face of market volatility.
Liquidity
Consider the average trading volume of a REIT ETF to ensure it has sufficient liquidity. You want to be able to sell your investment when the time comes, so opt for ETFs with active trading.
Stable Management and Track Record
Choose REIT ETFs from well-established companies with a proven track record. Look for stability in management and a long history of success. Trustworthy and experienced ETF providers are more likely to offer reliable and consistent performance over time.
With these factors in mind, let's explore the top REIT ETFs in Canada for 2024.
Vanguard FTSE Canadian Capped REIT ETF (VRE)
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The Vanguard FTSE Canadian Capped REIT ETF (VRE) stands out with its low management fee of only 0.38%. With a focus on medium to small-cap companies, VRE offers exposure to retail, industrial, residential, commercial, and healthcare REITs.
Although VRE has a smaller portfolio size, consisting of 19 holdings, it compensates with excellent liquidity. The ETF's average trading volume exceeds 9,000 shares daily, making it easy to buy and sell.
BMO Equal Weight REITs Index ETF (ZRE)
The BMO Equal Weight REITs Index ETF (ZRE) aims to replicate the performance of the Solactive Equal Weight Canada REIT Index. It includes a well-balanced allocation of 23 of Canada's top real estate investment trusts, featuring residential, retail, and industrial properties.
With an average trading volume of approximately 16,000 shares, ZRE offers sufficient liquidity. Although its management fee is slightly higher at 0.61%, it is still preferable to the fees associated with mutual funds.
iShares’ S&P/TSX Capped REIT ETF (XRE)
Blackrock's iShares’ S&P/TSX Capped REIT ETF (XRE) is the oldest REIT ETF on our list, with a strong track record dating back to 2002. It boasts over a billion dollars in assets under management and an impressive daily trading volume of almost half a million shares.
XRE offers exposure to a mix of residential, retail, office, industrial, and healthcare properties. While it has only 17 holdings, including a small number of top-weighted REITs, XRE has consistently yielded dividends of around 4% for the past decade.
CI Canadian REIT ETF (RIT)
Formerly known as CI Canadian First Asset REIT ETF, CI Canadian REIT ETF (RIT) is actively managed, setting it apart from many other REIT ETFs. While it carries the highest management fee on our list at 0.87%, RIT also delivers impressive performance.
RIT's diversified portfolio includes 39 different real estate holdings across industrial, residential, commercial, and healthcare sectors. Despite its higher fee, RIT has provided a solid return of 8% over the past decade. Moreover, it boasts an average trading volume of over 13,000 trades daily, ensuring ample liquidity.
Should Canadians Invest in REIT ETFs?
REIT ETFs offer Canadians a great opportunity to diversify their investment portfolios with exposure to real estate. By adding real estate assets to your investment mix, you can offset stock market volatility while enjoying regular dividends.
Although REIT ETFs come with additional fees compared to individual REITs, their benefits, such as professional management, diversification, and potential outperformance, make them worth considering for long-term passive investing.
If you decide to invest in REITs or REIT ETFs, consider using recommended brokers like Qtrade or Questrade. Qtrade offers free buying and selling of over 100 ETFs, including CI Canadian First Asset REIT ETF (RIF). Questrade allows commission-free buying of all Canadian and US listed ETFs.
In conclusion, the best REIT ETFs in Canada combine low fees, diversification, liquidity, and stable management. The Vanguard FTSE Canadian Capped REIT ETF, BMO Equal Weight REITs Index ETF, iShares’ S&P/TSX Capped REIT ETF, and CI Canadian REIT ETF are all strong options to consider for your investment portfolio.
