5 Top Performing US Focused Real Estate ETFs

Real estate has been in focus with the upcoming sector change. Here we take a look at the best performers in the space this year.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

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:

 

TickerFundYTD Return (%)
KBWY PowerShares KBW Premium Yield Equity REIT Portfolio28.96
ROOFIQ US Real Estate Small Cap ETF19.07
VNQ Vanguard REIT Index Fund13.94
FRIFirst Trust S&P REIT Index Fund13.6
FREL Fidelity MSCI Real Estate Index ETF12.94
IYR iShares U.S. Real Estate ETF12.27
PSRPowerShares Active US Real Estate Fund12.14
SCHH Schwab U.S. REIT ETF11.61
RWR SPDR Dow Jones REIT ETF11.47
FTY iShares Real Estate 50 ETF11.4
WREI Wilshire US REIT ETF10.93
ICF iShares Cohen & Steers REIT ETF10.43
XLREReal Estate Select Sector SPDR Fund9.13
EWRE Guggenheim S&P 500 Equal Weight Real Estate ETF8.38
REZ iShares Residential Real Estate Capped ETF7.23

 

Contact Sumit Roy at [email protected].

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.