Property exchange traded funds (ETFs) hold baskets of securities v property and provides investors with a cheaper way to invest in the industry compared to other options. These funds often focus specifically on real estate investment trusts (REITs), which are securitized real estate portfolios. REITs offer investors income potential, as well as liquidity traditional shares. Some of the major names in the REIT space include Vornado Realty Trust (VNO) and Welltower Inc. (WELL).
Investing in these and other REITs allows investors to receive dividend distribution. Although the financial returns may be less than owning the entire building and siphoning off all the rental income, they are less risk.
- The real estate sector has outperformed the broader market over the past year.
- The REIT ETFs with the best annual total returns are KBWY, NURE and VRAI.
- The top holdings of these three ETFs are Global Net Lease Inc., Extra Space Storage Inc. and Steel Dynamics Inc.
There are 32 REIT ETFs traded in the US, excluding inverse and leverage effect ETFs as well as ETFs with less than $50 million assets under management (AUM). The real estate sector, as measured by the S&P 500 Real Estate Sector Index, has outperformed the broader stock market over the past year. The index has provided a total return of -0.1% over the past 12 months, which is more than the S&P 500’s total return of -3.1% as of August 17, 2022. The best performing REIT ETF over the last 12 months is the Invesco KBW Premium Yield Equity REIT ETF (KBWY).
Below we take a look at the top three REIT ETFs. All numbers below are as of August 17, 2022. In order to focus on the funds’ investment strategy, the top holdings listed for each ETF exclude cash holdings and cash-purchased holdings securities lending returns except in unusual cases, such as when the cash portion is exceptionally large.
- Total return in one year: 6.3%
- Cost ratio: 0.35%
- Annual Dividend yield: 5.52%
- Three-month average per day Volume: 132,356
- Assets under management: $311.0 million
- Start date: December 2, 2010
- Issuer: Invesco
KBWY is designed to track the KBW Nasdaq Premium Yield Equity REIT Index, which is based on a modified dividend yield weighting methodology. The fund focuses on the lower end of the market capitalization spectrum, to which approximately 80% of the portfolio is allocated small cap REIT and the remaining 20% invested in middle cap companies. The Index and the Fund are subject to rebalancing on a quarterly basis, occurring on the third Friday of the last month in each quarter.
The largest holdings in the Invesco KBW Premium Yield Equity REIT ETF include Global Net Lease Inc. (LNG), which invests in commercial real estate primarily in the US and Europe; Class A shares of The Necessity Retail REIT Inc. (RTL), specializing in US real estate retail and services; and Omega Healthcare Investors Inc. (OHI), a REIT focused on nursing and assisted living facilities.
- Total return in one year: 5.1%
- Expense ratio: 0.35%
- Annual dividend yield: 2.05%
- Three-month average daily volume: 35,572
- Assets under management: $125.2 million
- Start Date: December 19, 2016
- Issuer: TIAA
The Nuveen Short-Term REIT ETF aims to track the Dow Jones US Select Short-Term REIT Index, which is comprised of US publicly traded equity REITs with holdings concentrated in apartment buildings, hotels, storage facilities and manufactured home properties. The ETF provides exposure to REITs with short-term leases. There will likely be fewer of these types of REITs sensitive to changes in interest rates than REITs with longer leases. Just over half of the fund’s holdings are apartment REITs, with self-storage and hotel REITs making up most of the rest.
NURE’s top holdings are Extra Space Storage Inc. (EXR) and public storage (PSA), two REITs that operate self-storage facilities, as well as AvalonBay Communities Inc. (AVB), which owns an ownership stake in apartment communities across the US
- Total return in one year: 3.7%
- Expense ratio: 0.55%
- Annual dividend yield: 3.88%
- Three-month average daily volume: 15,928
- Assets under management: $139.1 million
- Start date: February 7, 2019
- Issuer: Vital Investment Partners
The benchmark The Virtus Real Asset Income ETF is an Indxx Real Asset Income Index that offers investors exposure to a basket of stocks in the real estate, natural resources and infrastructure sectors. According to ETF issuer Virtus Investment Partners, VRAI “is different from other real asset strategies in that it does not invest directly in hard assets or commodity instruments; rather, it invests exclusively in equities in real asset categories and has a specific focus on income.” With its diversified approach across various segments, VRAI provides growth opportunities as well as potential inflation protection.
True to its multifaceted composition, VRAI Steel Dynamics Inc. is among the best holdings. (STLD), which deals with metalworking and recycling; Delek Logistics Partners LP (DKL), medium-sized oil and gas company; and Class A shares of Sitio Royalties Corp. (PAGE), which invests in US oil and gas royalties
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