Real Estate ETFs Up as Investors Anticipate Fed Easing on Interest Rates

March 14, 2023

The first day of trading the week after the second and third largest bank collapses in U.S. history saw the Real Estate Select Sector SPDR Fund (XLRE) outperform all the other funds in the Select Sector SPDR family. The fund was up 1.6%.  

That was likely at least partly due to the idea that in the wake of the collapses of SVB and Signature Bank, the Fed might call a halt to interest rate hikes. Those rate hikes have led to increases in 30-year mortgage rates to more than 6.5%. 

Home prices have been falling, but limited supply means there is likely a bottom to be found even if rates continue to rise. However, there is no consensus. When it comes to commercial real estate, there’s a lot of built-up money on the sidelines that could come into play, according to some sources.  

The top 10 real estate ETFs include four products from the iShares lineup, but most of the major players in the ETF industry are represented. The passively managed Vanguard Real Estate ETF (VNQ) is the largest, with $33.3 billion in assets under management.  


Ticker Fund Segment Expense Ratio AUM YTD Return YTD Flows
VNQ Vanguard Real Estate ETF Equity: U.S. Real Estate 0.12% $33.33B -2.02% -$405.70M
SCHH Schwab U.S. REIT ETF Equity: U.S. REITs 0.07% $5.64B -2.23% $0.86M
XLRE Real Estate Select Sector SPDR Fund Equity: U.S. Real Estate 0.10% $4.63B -2.25% -$348.17M
IYR iShares U.S. Real Estate ETF Equity: U.S. Real Estate 0.39% $3.30B -2.48% -$585.07M
ICF iShares Cohen & Steers REIT ETF Equity: U.S. REITs 0.32% $2.27B -2.90% $24.74M
USRT iShares Core U.S. REIT ETF Equity: U.S. REITs 0.08% $1.93B -0.95% -$21.13M
RWR SPDR Dow Jones REIT ETF Equity: U.S. REITs 0.25% $1.51B -0.95% -$40.24M
FREL Fidelity MSCI Real Estate Index ETF Equity: U.S. Real Estate 0.08% $1.26B -2.06% -$208.68M
BBRE JPMorgan BetaBuilders MSCI U.S. REIT ETF Equity: U.S. REITs 0.11% $720.73M -0.93% -$161.60M
REZ iShares Residential and Multisector Real Estate ETF Equity: U.S. Real Estate 0.48% $649.65M 0.04% -$21.86M

Source: and FactSet as of 3/10/2023


The fund is broad-based, with nearly 170 holdings that include REITs and real estate stocks. The largest of those is a Vanguard mutual fund that tracks the same index as VNQ and represents more than 12% of the portfolio, while the largest individual securities are Prologis Inc. at 7.7%, American Tower Corp. at 6.7 % and Equinix Inc. at 4.3%. 

VNQ is down roughly 2% year to –date, and it underperformed the broader U.S. market in 2022, with an expense ratio of just 0.12%. 

However, the second largest fund in the group, the Schwab U.S. REIT ETF (SCHH), has a lot to recommend it. The $5.6 billion fund comes with an expense ratio of just 0.07%, the cheapest in this group. Its underlying index exclusively covers REITs, though it excludes mortgage and hybrid REITs. The fund is down 2.2% year to date.  

It’s a bit narrower than VNQ, with just about 130 holdings, but its top three holdings are essentially the same: Prologis at 9.5%, American Tower at 7.5% and Equinix at 5.3%.  

XLRE has $4.6 billion; its index is a subset of the S&P 500 index and includes both REITs and real estate stocks, excluding mortgage REITs. The fund has an expense ratio of 0.10%. It has a much narrower portfolio than the other two ETFs covering the space, with just 32 holdings. XLRE has the same top three holdings as the other two funds: Prologis at 12.8%, American Tower at 10.2% and Equinix at 7.2%. 

The $3.3 billion iShares U.S. Real Estate ETF (IYR) takes an all-encompassing approach to the real estate industry and has an expense ratio of 0.39%, one of the heftiest in the space. It has 81 holdings, including the same three top holdings as the other funds. The fund has declined 2.5% year to date. 

Another iShares fund, the $2.3 billion iShares Cohen & Steers REIT ETF (ICF) comes with an expense ratio of 0.32%. Its underlying index covers large cap REITs and has just 31 holdings. Again, the top holdings are the same as for the other previously described funds. With a decline of 2.9% year to date, it is the worst performer in a group of funds that have fairly tightly clustered returns. 

The most differentiated fund in the group is the smallest. The $649.7 million iShares Residential and Multisector Real Estate ETF (REZ) is also the costliest, with an expense ratio of 0.48%. It lists Public Storage (11.3%), Welltower Inc. (8.2%) and Avalon Bay Communities Inc. (5.9%) as its top holdings—a very different top three from the other funds in the group. With flat performance year to date, it’s the best-performing fund in the category. 

Indeed, the year-to-date returns range from -2.9% to flat. But that’s not surprising given the majority of the funds have the same top three holdings. Generally, these funds are pretty similar, whether they cover REITs, real estate stocks or a combination thereof. The largest factor exposure for each fund is the yield factor, with low size generally a close second. All the funds also have significant negative exposure to the quality factor.  

If you’re prioritizing cost, SCHH seems the smartest choice, not the least because of its fairly broad portfolio, but if you’re looking for a fund with less correlation to its competitors, REZ is another possibility, even with its price tag.  

And when it comes to tradability, both XLRE and VNQ have the largest daily share volumes. It’s really a matter of knowing your investment priorities and examining the funds to determine which one best fulfills your goals.  


Contact Heather Bell at [email protected] 

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