ETF Of The Week: Real Estate Fund Sees Big Demand

March 08, 2019

Among the crowded real estate ETF field, the Vanguard Real Estate ETF (VNQ) reins supreme. With $33 billion in assets under management, the fund is by far and away the largest real estate ETF, and one of the largest ETFs, period.

As Bloomberg Intelligence's Tom Psarofagis pointed out on Twitter, VNQ saw $1.7 billion in net inflows in February, making it the fund's largest month of inflows ever (read: "February Sees Big ETF Flows Turn").

 

Source: ETF.com; date range, 2/1- 28, 2019

 

Performance Chasing & Safe Haven

Some of those flows are undoubtably due to performance chasing. Year-to-date, the ETF is up 12.58%, among the best of any vanilla, broad-based U.S. real estate ETF. Only the JPMorgan BetaBuilders MSCI U.S. REIT ETF (BBRE) has done better, at 12.59% (and VNQ is almost 30 times larger than BBRE).

But investors are probably also looking to VNQ as a safety play. Concerns about U.S.-Chinese trade relations and increasingly bleak global economic data have led to a slide in bond yields, particularly U.S. Treasuries. In a low-yield environment, real estate can be a haven in the storm—especially now that the Fed has pumped the brakes on rate hikes.

Inside VNQ

VNQ offers relatively size-agnostic exposure to the U.S. real estate market, with a broad portfolio of 191 REITs and real estate stocks (read: "ETF Picks For A Retiree").

Intriguingly, the fund's second-largest position (after an 11% allocation to the company's own real estate mutual fund) is a 6% allocation to American Tower Corporation (AMT).

American Tower is a cellphone tower company and infrastructure play. As such, it adds stability to the portfolio even when other real estate subsectors are declining.

VNQ Vs Other Real Estate ETFs

VNQ tilts toward commercial REITs (42%), distinguishing it from the $4 billion iShares U.S. Real Estate ETF (IYR) (which used to be the second-largest U.S. real estate ETF until the $5 billion Schwab U.S. REIT ETF (SCHH) came along).

For its part, IYR has a smaller portfolio than VNQ (116 stocks), with a greater allocation in specialized REITS (40%).

Meanwhile, SCHH has a higher allocation to commercial REITs than VNQ (49%), with about half as many names as VNQ (99).

SCHH is also the cheapest of the big U.S. real estate ETFs, with an expense ratio of 0.07%. Though that undercuts VNQ's 0.12%, investors don't seem to mind, as VNQ remains the sector's clear heavyweight.

On average, VNQ trades $600 million in volume every day, more than four times SCHH's average trading volume. (IYR, however, remains the clear favorite for traders, with an eyepopping $710 million in daily trading volume.)

Contact Lara Crigger at [email protected].

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