The best REIT ETFs for 2021.
Interest rates have been pushed to near zero levels and inflation is high, prompting investors to look to higher yielding asset classes. Real Estate Investment Trust Exchange Traded Funds, or REIT ETFs, offer many advantages to a fixed income portfolio, such as capital appreciation and a stable source of dividend income. REIT ETFs are alternative investments that can protect against inflation. These income-generating investments can offer higher returns without compromising the investment risk. Owning REIT ETFs can be an affordable, low-risk strategy for investors to diversify their holdings without having to own actual properties. Andrew Rosen, president of Diversified LLC in Wilmington, Delaware, recommends considering liquidity, costs, and management when purchasing these types of funds. Here are seven REITs REITs to consider.
Vanguard Real Estate ETF (symbol: VNQ)
The Vanguard Real Estate ETF offers investors a wide range of real estate investment exposures, with an affordable expense ratio of 0.12%, which means $ 12 in annual fees for every $ 10,000 invested. The portfolio includes different types of properties to spread risk from industrial REITs to residential, healthcare and hotels and resorts, among other types of properties. âThe easiest way to get broad exposure to the industry is to buy a general REIT, which has a mix of all types of REITs / ownership types. This can be guaranteed by Vanguard’s VNQ, âsays Thomas Hayes, chairman and managing member of Great Hill Capital in New York. This fund holds 170 REITs in shares. Major holdings include American Tower Corp. (AMT), Prologis Inc. (PLD) and Crown Castle International Corp. (CCI), each of which represents at least 5% of the fund.
VanEck Vectors Mortgage REIT Income ETF (MORT)
While equity REITs invest in income-producing real estate, mortgage REITs, or REITs, invest in mortgages and mortgage-backed securities, or MBSs, which generate income through interest. Returns from mREITs tend to have higher earning potential than equity REITs. This VanEck mREIT ETF is currently earning around 8%. Since mREITs are funded by debt, investors look at the gap between the debt load on the asset and the mortgage yield. Hayes says mREITs benefit from wider spreads between their borrowing costs and mortgage / MBS yield. âWith the yield curve at its highest point in several years, now is the right time for mortgage REITs,â he explains. But investors should be aware that mREITs carry interest rate risk. As rates rise, they become less attractive to investors. But Hayes says that shouldn’t be a problem in the near term, as the Federal Reserve won’t start raising rates until 2022. âThe outlook is bright for this asset class,â he says.
IShares US Real Estate ETF (IYR)
One of the leading real estate ETFs in the market is the iShares US Real Estate ETF. IYR, which was established in 2000, owns over 80 holdings and, like VNQ, covers the big names in REITs. Having said that, this fund has a higher expense ratio at 0.41%. Although there is an overlap in many holdings of the funds, one of the differences is in the varying weighting of the different assets in each fund. Both ETFs cover a wide range of REITs, which can help manage volatility. VNQ may be more profitable, but IYR’s 10-year average annual total return is 11.2%, while VNQ’s is 10.8%.
Global X Data Center REIT & Digital Infrastructure ETF (VPN)
This fund should appeal to investors who want balanced exposure to some of the most notable names in data center stocks, such as Equinix Inc. (EQIX) and Digital Realty Trust Inc. (DLR). Investments that support technology infrastructure like data center REITs have the potential for strong market growth this year. As the reliance on technology has accelerated, the demand for digital executives supporting 5G technology and wireless communication networks is increasing. Cue VPN, a REIT ETF that “seeks to invest in companies that operate data center REITs and other digital infrastructure supporting the growth of communications networks,” according to Global X. This new fund, launched in October 2020, carries an expense ratio of 0.5%, and the ETF offers a combination of income generation from real estate assets and growth of the technology sector. The total return of the VPN since the start of the year is 14.7%.
Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
Industrial REITs are companies that own and manage properties used for the storage, manufacturing and distribution of goods. This industry has been profitable as e-commerce businesses have become a convenient and efficient way to shop, hence the need for more warehouses and distribution centers for business goods. Given the demand for these properties, profitability and the risk of default are not immediate concerns, a key advantage of industrial REITs. Patrick Carroll, CEO and founder of Carroll, a national investment and property management firm, says the coronavirus pandemic has created dramatic changes in the demand for commercial real estate. âAs the world stayed at home, the demand for warehouse and data center space started to skyrocket due to the increase in the number of people ordering items from home,â he explains. he. âThis has resulted in an increased need to store and ship products and an increased demand for the technologies that serve these industries. With this dynamic still at work, industrial REITs could continue to benefit from some of the trends spurred by the pandemic.
ETF Schwab US REIT (SCHH)
SCHH is a passively managed fund that invests in equity REITs. This fund has an affordable expense ratio of 0.07%. What is unique about this REIT ETF is its structure: the weight of any company in the index cannot exceed 10%, and the combined weight of companies with a weight above 4.5% cannot exceed 22, 5%. There are around 140 holdings in total and the fund has a weighted average market cap of almost $ 34 billion. The top 10 holdings in the portfolio represent over 40% of the fund. SCHH has a mix of sub-sector weightings such as Specialty REITs at 38.8%, Residential REITs at 15.8% and Industrial REITs at 11.7%. SCHH has a yield of 2.11%.
Vident US Diversified Real Estate ETF (PPTY)
PPTY offers diversification to real estate investors. Its main types of properties include residential, office and industrial REITs. Investors who choose this REIT ETF appreciate diversity in property type and location, which are paramount considerations when investing in real estate. This fund is a multi-cap ETF, which means it holds companies of different market capitalizations, which can help manage market volatility. PPTY focuses on companies with strong balance sheets and reduces its allocation to companies with large amounts of debt, which helps reduce the risk of default. The fund was created in 2018 and has posted a total return of 33.8% since the start of the year. PPTY has an expense ratio of 0.49%.
Consider these REITs REITs:
- Vanguard Real Estate ETF (VNQ)
- VanEck Vectors Mortgage REIT Income ETF (MORT)
- IShares US Real Estate ETF (IYR)
- Global X Data Center Reits & Digital Infrastructure ETF (VPN)
- Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
- ETF Schwab US REIT (SCHH)
- Vident American Diversified Real Estate ETF (PPTY)
Update to 23 November 2021: This story was posted on an earlier date and has been updated with new information.