Top REIT ETFs Show Similarities, Differences

June 12, 2017

ETFs offer some of the simplest ways to get exposure to real estate. With the Global Industry Classification Standard having officially sanctioned real estate as its own sector, property-based real estate investment trusts trade on their own fundamentals instead of being tucked into the financial sector, as it was previously.

Additionally, the low-interest-rate environment and slow-but-steady economic growth have helped the real estate sector overall. In the ETF world, there are 18 REITs. Just the top five funds alone hold almost $50 billion in assets under management combined. Because equity REITs are still a niche product, these funds all have some type of holdings overlap, and where they differ the most is in their weightings. Below is a roundup of the top REIT ETFs.

1. Vanguard U.S. REIT ETF (VNQ)

VNQ is the undisputed size-champ of the REIT ETFs. As of May 31, it has $34.82 billion in assets under management (AUM), and is up 0.26% year-to-date. Its five-year track record is up 10.19%, and like all Vanguard funds, it has a super-low expense ratio—0.12%. It’s also an Analyst Pick. VNQ debuted in 2004.

The fund tracks the MSCI US REIT Index, a free-float-adjusted market-cap index, representing 99% of publicly traded U.S. REITs. The index—and thus the fund—focus on the equity-property REITs as designated by GICS, so it excludes mortgage REITs.

The fund has 157 stocks, with a weighted average market cap of $15.69 billion. Its price-to-earnings ratio is 39.32, with price-to-book at 2.35. Its biggest REIT holdings by sector are retail, at 19.80%—specialized at 17.30% and residential at 16.30%. While retail and residential categories are self-explanatory, specialized REITs include nontraditional properties like timber companies, baseball parks and golf courses.

The top sector breakdowns can be seen a bit in its top three holdings, with Simon Property Holdings Group, a mall, in the top spot. Second is data-center REIT Equinix, and third is self-storage REIT Public Storage. These three holdings represent 33.9% of assets.

2. iShares U.S. Real Estate ETF (IYR)

With AUM of $4.27 billion, IYR is the next biggest REIT ETF. As of May 31, it is up 3.43% year-to-date. Its five-year track record is up 9.57% and it has an expense ratio of 0.44%. It launched in 2000, making it one of the first U.S. real estate ETFs.

IYR closely tracks the Dow Jones U.S. Real Estate Index, which follows the real estate sector, meaning it focuses on equity property REITs. It’s a market-cap-weighted fund, and the weighted average market cap is $18.72 billion.

The fund has 125 stocks. Its price-to-earnings ratio is 33.18, with price-to-book at 2.51. The sector breakdown for the fund stands out, too, with 29.91% specialized REITs taking the top spot, 14.26% retail and 13.12% residential. Its top three holdings are communications-tower REIT American Tower, Simon Property Holdings and Crown Castle, another cell-tower REIT, and they comprise 14.3% of total assets.


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