5 Top Performing US Focused Real Estate ETFs

August 26, 2016

In less than a week, real estate will break away from financials to become the 11th and newest sector under the Global Industry Classification Standard (GICS). The move elevates real estate to a prestigious position within the stock market, though its impact on the way people invest may be limited.

(See: What The New Real Estate Sector Means For ETFs)

Known for their hefty dividends and growth potential, real estate stocks―and in particular, real estate investment trusts (REITs)―have always been attractive to income-orientated investors, and that will remain the case.

Technically, the new real estate sector under GICS will consist of two industry groups: equity REITs, and real estate management and development companies (mortgage REITs will remain a part of the financials sector).

However, as it stands now, of the 28 stocks in the S&P 500 that will be in the real estate sector, 27 are REITs. In the S&P Midcap 400, 37 of 39 real estate stocks will be REITs, and in the S&P SmallCap 600, 28 of 31 real estate stocks will be REITs.

In other words, the new real estate sector will be so overwhelmingly REITs that it is essentially a REIT sector.

Real Estate Sector Is REITs

For ETF investors, that means buying a U.S. real estate sector ETF is little different than buying a REIT ETF―both funds will be predominantly REITs.

That said, there are many differences between the various U.S. real estate ETFs and REIT ETFs out there. This year's top U.S. real estate ETF, for example, is up 29.3%, while the bottom-performing ETF in the segment is up only 7.7%.

Not all of these ETFs adhere to the GICS, and some don't even track an index. The No. 1 performer, the PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY), holds small and midcap REITs, and weights them by dividend yields.

The result is an ETF that currently has a juicy 6.9% 30-day SEC yield.

Likewise, the No. 2 performer, the IQ Real Estate Small Cap ETF (ROOF), also focuses on smaller-cap companies by holding REITs in the bottom 10% of the market capitalization of the industry. ROOF currently has a SEC yield of 4.6% and is up 19.2% year-to-date.


Largest Real Estate ETF Doing Well

The top two U.S. real estate ETFs of the year are both focused on smaller companies, but large-cap-heavy funds are doing well also.

The Vanguard U.S. REIT Index Fund (VNQ), the largest real estate ETF by far, with more than $35 billion in assets, is up 14% this year. Its yield of 3.4% isn't as large as that of the small-cap REIT ETFs, but is backed by a much broader portfolio that covers essentially the whole U.S. REIT universe. VNQ is also dirt-cheap, with a 0.12% expense ratio.

That's much cheaper than the next-best-performing fund in the segment, the First Trust S&P REIT Index Fund (FRI), with a 0.48% expense ratio. FRI, up 13.5% year-to-date, also covers the broad REIT sector, but it follows a S&P index, as opposed to the MSCI index tracked by the aforementioned VNQ. It has a 30-day SEC yield of 3.1%.

Also tracking a MSCI index is the Fidelity MSCI Real Estate Index ETF (FREL), with a gain of 12.8% to-date. A relatively new entrant into the space, FREL is a real estate sector fund; that means in addition to REITs, it includes real estate management and development companies (as negligible as they may be in terms of weighting).

It's also the second-cheapest fund in the segment, with an expense ratio of 0.08%, while its yield of 3.3% is in line with similar ETFs.

For a full list of year-to-date returns for U.S. real estate ETFs, see the table below:


Ticker Fund YTD Return (%)
KBWY  PowerShares KBW Premium Yield Equity REIT Portfolio 28.96
ROOF IQ US Real Estate Small Cap ETF 19.07
VNQ  Vanguard REIT Index Fund 13.94
FRI First Trust S&P REIT Index Fund 13.6
FREL  Fidelity MSCI Real Estate Index ETF 12.94
IYR  iShares U.S. Real Estate ETF 12.27
PSR PowerShares Active US Real Estate Fund 12.14
SCHH  Schwab U.S. REIT ETF 11.61
RWR  SPDR Dow Jones REIT ETF 11.47
FTY  iShares Real Estate 50 ETF 11.4
WREI  Wilshire US REIT ETF 10.93
ICF  iShares Cohen & Steers REIT ETF 10.43
XLRE Real Estate Select Sector SPDR Fund 9.13
EWRE  Guggenheim S&P 500 Equal Weight Real Estate ETF 8.38
REZ  iShares Residential Real Estate Capped ETF 7.23


Contact Sumit Roy at [email protected].

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