Best UK REIT ETFs – that will be the title of this article.
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Real estate investment fund (REIT) ETFs are exchange-traded funds (ETFs) that put in an investment the biggest part of their assets in REIT equity securities and similar derivatives. REIT ETFs are passively managed based on an index of publicly traded property owners. Two commonly used benchmarks are the MSCI U.S. REIT and Dow Jones U.S. REITs, which cover about two-thirds of the total value of the internal public REIT market.
Real estate investment fund (REIT) securities have features of both stocks and fixed income securities. Their high dividend yield provides a stable income, but their valuations can fluctuate with the stock market. REITs must pay the majority of the profits to investors annually. Usually, REIT ETFs belong to REIT stakeholders that own income properties. From this, they generate money through rentals and leases. Such objects may include warehouses, residential complexes, and hotels.
Investors should carefully read prospectuses when researching ETF REITs. During the researches, you can find various indexes in totally different areas of activity, like commercial mortgages or high-risk mortgages. Investors may unknowingly find themselves in these “riskier” areas of the real estate market.
Real Estate Investment Trusts (REITs) are a great way to access the UK property market through a portfolio of stocks and equities. Read on to find out everything you need to know about choosing a REIT and investing in the real estate market.
Investors from the UK are spoiled when it comes to choosing a REIT ETF to invest in. There are dozens of options that offer access to niche markets such as social housing, as well as commercial, industrial, residential, and overseas property. The best REIT for you will depend on your individual risk profile and the type of market you want to access. For example, a trader might want to invest in a REIT ETF that has a high degree of liquidity; whereas a long-term investor may choose to take a long position in promising REIT stocks.
The greatest REITs come with an instant access to the always working real estate markets without any necessity of a mortgage or deposit. Just select your REIT or REIT ETF and start investing or trading.
It is important to ensure that you select the correct REIT for your individual needs. For some investors, this could mean choosing a UK REIT that invests in UK real estate. Others may look for REITs that meet specific environmental, social and corporate governance (ESG) requirements; while others may choose to invest in overseas property through a Japan-focused REIT, a US REIT, or even a global REIT ETF.
ETFs offer access to multiple stocks, equities and funds with a single investment, so you can be sure you have a very diversified portfolio instead of relying on the performance of one or two REIT stocks.
Table of Contents
UK REIT stocks to consider
Here are the leader stocks you should know about and consider during your investment process:
- British land REIT
- Secure income REIT
- Triple Point Social Housing REIT
British land REIT
One of the best UK REITs, British Land is an FTSE 100 listed company that has been operating as a REIT since 2007. The company itself has existed since 1856 with one simple task – to buy and sell British lands.
By the end of March 2020, the company’s portfolio was valued at £ 11 billion, although the company is believed to have lost around £ 1 billion due to the Covid-19 pandemic. British Land owns over 50 acres in central London, including famous locations such as Broadgate, Regent’s Place and Paddington Central.
As a REIT, 90% of a company’s tax-free profits must be distributed to shareholders. It pays out dividends twice a year, with each dividend typically ranging from 6p to 8p per share.
Triple Point Social Housing REIT
One of the best REITs for community-driven investors, the Triple Point Social Housing REIT has taken advantage of the growing ESG trend with its Social Housing REIT. Founded in 2017, its main goal is to invest in social housing assets across the UK, with a focus on supported housing.
Since its IPO, Triple Point Social Housing REIT has acquired 445 supported housing properties for a total of approximately £ 571.5 million.
During 2020, the group provided a revolving line of credit for the purchase of a number of new properties, while continuing to pay a dividend of 1.295p per common share on a quarterly basis.
Safe income REIT
Another REIT with a focus on the UK, Secure Income REIT specializes in generating long-term, inflation-protected real estate investment returns across the country. Long-term renters include Merlin Entertainment and Travelodge Hotels, as well as a number of private hospitals and pubs on the High Street. By December 31, 2020, his portfolio was valued at just under £ 2 billion.
This eclectic portfolio offers a slice of UK commercial real estate in a single investment. Despite the downturn associated with the pandemic during 2020, Secure Income REIT paid a high dividend of 15.15p for the year, just marginally below the dividend of 16.53p that was paid during 2019.
Top 8 UK REIT ETFs 2021-2022
ETF REITs are an affordable and cheap way to access real estate investments, increase portfolio diversification and reduce risks. Below we will discover everything about REIT ETF investing and the best UK REIT ETF opportunities in the UK and globally for 2021-2022.
In case you are looking for the best UK REIT ETF, here are the top 8 recommended REIT ETFs. Find out more detailed overviews of each below.
- iShares UK Property UCITS ETF (IUKP)
- Vanguard Real Estate ETF (VNQ)
- iShares MSCI Target UK Real Estate ETF (UKRE)
- HSBC FTSE EPRA Developed UCITS ETF (HPRD)
- iShares Asia Property Yield UCITS ETF (IDAR)
- iShares Global REIT ETF (REET)
- iShares US Real Estate REIT ETF (IYR)
- iShares European Property Yield UCITS ETF (IPRP)
iShares UK Property UCITS ETF (IUKP)
This country-specific ETF is focused on growth through a diversified presence in the UK real estate market, with 27% of the fund invested in diversified REITs, 10.6% in office space, 9.7% in residential, 7.6% in property ownership and development and 5.7% in retail space. A year ago, the iShares UK Property UCITS ETF gave about 11.7% of its assets under management. ETFs can lend securities to boost yields, although it should be said that in this case it did not stop the negative tracking margin fund, which means it is worse than its benchmark. The Foundation is eligible to participate in ISA and SIPPS.
The fund monitors the performance of the FTSE EPRA / NAREIT United Kingdom Index of REITs and real estate companies by investing in their shares. Over the past 12 months, ETF returns were 21%, and since the beginning of the year – 8.4%. Its expense ratio is 0.40% and the tracking difference is -0.11%. IUKP has a UCITS risk factor of 5, where 1 is the lowest and 7 is the highest. The foundation has a good MSCI ESG (Environmental, Social and Governance) score of 6.8, with 10 being the highest score available. It distributes dividends to the fund holders.
Vanguard Real Estate ETF (VNQ)
The ETF invests in the US real estate and REIT companies that take under management office buildings, hotels, and other profitable real estate. It offers a high potential for investment income, but also takes into account the element of growth. As you would expect given the popularity of the Vanguard fund management group, it is a large fund, weighing $ 67 billion and 174 holdings, although the top 10 holdings account for 44% of the fund. Specialized REITs account for 37% of funds, followed by the housing sector with 13.9%.
VNQ monitors the MSCI US Investable Market Real Estate 25/50 Transition GTR Index. ETFs provide physical access to the underlying assets of the index. 98% of the fund is invested in the United States and has net assets of $ 67.8 billion. Over the past 12 months, it has brought in 31%, and since the beginning of the year – 14%. Its expense ratio is 0.12% and the tracking difference is -0.22%. This ETF distributes dividends to provide a stream of income for its investors.
iShares MSCI Target UK Real Estate ETF (UKRE)
This fund has a net worth of £ 73 million and invests entirely in the UK with a targeted investment in liquid real estate and government bonds. UKRE is can be in an inclusion in ISA and SIPP, and for some investors it has an MSCi ESG quality score rate of 6.29. Unlike other UK REIT ETFs, the inclusion of UKRE UK bonds represents a diversification factor for ETFs. The average share of credit securities as a percentage of assets under management in 2020 was 2.95%. The iShares MSCI Target UK Real Estate ETF is listed on the London Stock Exchange.
Tracks the dynamics of the MSCI UK IMI index of net total profitability of liquid real estate. ETFs provide physical access to the underlying assets of the index. The company is 100% invested in the UK and in terms of asset class 64.3% is invested in REIT and 34.9% invested in UK government bonds. Over the past 12 months, its profitability amounted to 12.4%, and since the beginning of the year – 4.1%. Its expense ratio is 0.40% and its tracking difference is -0.30%. This ETF distributes dividends to provide a stream of income for its investors.
HSBC FTSE EPRA Developed UCITS ETF (HPRD)
This ETF REIT invests globally, half of which is in the US. The fund is small at £ 137 million, and dividends are distributed on a quarterly basis. The UCITS risk indicator has a value of 5 (the maximum value is 7). The Fund can invest up to 10% of its funds in other funds, including HSBC funds, and under exceptional market conditions can invest up to 35% of the asset value in securities of one issuer. Both of these target criteria provide the flexibility to make this fund an all-weather contender.
Tracks the dynamics of the FTSE EPRA / NAREIT developed net total return index. ETFs provide physical access to the underlying assets of the index. Assets under management amount to EUR 159 million. Over the past 12 months, its profitability amounted to 34.4%, and since the beginning of the year – 11.2%. The largest shares of countries are in the USA (51%), Japan (11.4%), Germany (5.5%), Hong Kong (5.1%) and Great Britain (4.9%). Its expense ratio is 0.40% and its tracking difference is 0.12%. This ETF distributes dividends to provide a stream of income for its investors.
iShares Asia Property Yield UCITS ETF (IDAR)
Provides access to mature Asian real estate companies and REITs with an emphasis on income, but with the caveat that the holdings must have a projected one-year dividend yield of 2% or higher. The average fund has net assets of $ 535 million, of which 40% is invested in the Japanese market, 24% in Hong Kong and about 15% each in Australia and Singapore. The average loan figure is high at 20%, and for a REIT ETF, the fund is expensive due to an expense ratio of 0.59%, but this counts towards the costs associated with investing in countries that require some hedging of foreign exchange risks.
IDAR tracks FTSE EPRA / NAREIT Developed Asia Dividend + Total Net Profit. ETFs provide physical access to the underlying assets of the index. Over the past 12 months, it brought 28%, and since the beginning of the year – 7.8%. Its expense ratio is 0.59% and the tracking difference is -0.67%. This ETF distributes dividends to provide a stream of income for its investors.
iShares Global REIT ETF (REET)
The REEF ETF offers a wide access to different REITs existing in the world, that are listed on the stock markets. Like many real estate ETFs, REEF focuses on providing a stream of income for its investors, but in this case from both developed and emerging economies – its largest regional weight here in developed economies. With an expense ratio of 0.14%, this is one of the cheapest REIT ETFs in our sample. The quality score of the MSCI ESG is low – 3.2.
REET tracks the performance of the FTSE EPRA / NAREIT Global REIT The Global Net Total Return Index, which is comprised of REITs and real estate companies by investing in their stocks. Over the past 12 months, ETF returns were 36%, and since the beginning of the year – 12.6%. Its expense ratio is 0.14% and the tracking difference is 1.17%. Despite its status as a global ETF, REET invests 63% in the US. The rest of the country’s regions in the overwhelming majority belong to developed countries, the next largest countries are Japan (11.4%), Great Britain (5.6%), Australia (4.6%), Singapore (3.4%), Canada ( 3.0) and other countries (10.4%). … This ETF distributes dividends.
iShares US Real Estate REIT ETF (IYR)
The ETF provides specifically aimed access to the US real estate stocks and REITS. The fund is part of the eToro Sector ETF copy portfolio. An excellent fund to increase your presence in the US real estate market, retiring 31% in the 12 months to 31 March 2021. It also has a positive tracking difference, which means it outperforms the index it is tracking slightly. The fund has high stakes in specialized REITS (38%), and also includes holdings of residential, industrial and medical real estate, accounting for 14.4%, 10.3% and 8.8%, respectively.
The IYR tracks the dynamics of the Dow Jones Total Return Index in the United States. ETFs have a physical effect on the underlying assets of the index. 98% of ETFs are invested in the US, 92% in real estate, and the rest in industry. and the financial sector. Over the past 12 months, it brought 31%, and since the beginning of the year – 14.4%. Its expense ratio is 0.42% and its tracking difference is 0.13%. This ETF distributes dividends to give investors a stream of income.
iShares European Property Yield UCITS ETF (IPRP)
IPRP is another ETF choice for Europe, with the exception of UK REITs, can only invest in REITs with a dividend yield of 2% or higher. The shares are denominated in euros and have a UCITS risk rating of 6. The fund is relatively concentrated with only 65 assets. The total net asset value of this ETF is € 1.76 billion, making the average REIT ETF aiming Germany, where about 43% of assets are registered. The Foundation is eligible to participate in ISA and SIPPS.
Tracks the results of the FTSE EPRA / NAREIT Developed Europe Ex UK Dividend + Net of Tax Total Return Index. The ETF provides physical access to the underlying assets of the index with $ 1.68 billion in assets under management. Over the past 12 months, its profitability amounted to 23.5%, and since the beginning of the year – 2.7%. The largest shares of European countries are in Germany (43.4%), France (15.9%), Sweden (13.2%), Switzerland (8.7%) and Belgium (8.4%). Its expense ratio is 0.40% and its tracking difference is 0.30%. This ETF distributes dividends to provide a stream of income for its investors.
What are the pros and cons of REIT ETFs?
REITs have a unique advantage, which is including real estate in your investment portfolio. In addition, some REITs may offer higher dividend yields than some other investments.
But there are some risks, especially with OTC REITs. Since they are not listed on the stock exchange, non-tradable REITs carry particular risks:
- Lack of liquidity: Non-tradable REITs are illiquid investments. They are generally not easy to sell on the open market. If you need to sell an asset to raise money quickly, you may not be able to do so with stock in a non-tradable REIT.
- Share Price Transparency: During the time when the market price of a traded REIT is available without any hesitations, it can be challenging to set the value of a share of a non-traded REIT. Non-tradable REITs, as a rule, do not offer an estimate of their value per share until a year and 6 months after the offer is closed. This can happen years after you have made the investment. As a result, over a significant period of time, you may not be able to assess the value of your non-tradable REIT investment and its volatility.
- Distributions can be paid through supply and borrowing proceeds: Investors can be attracted to non-tradable REITs due to their relatively high dividend yield compared to publicly traded REITs. Anyways, in comparison the publicly traded REITs, non-traded REITs usually pay premiums in excess of their operating funds. To do this, they can use the proceeds from the offer and loans. This experience, that is not that popular among publicly traded REITs, decreases the value of the shares and the cash available to the company to purchase additional assets.
- Conflict of interest: Non-tradable REITs usually have an external manager rather than their own employees. This could lead to a potential conflict of interest with shareholders. For example, a REIT may pay an external manager significant fee based on the amount of property acquired and assets under management. These benefits are not necessarily in the interests of shareholders.
How to buy and sell REIT ETF?
You may have an opportunity to invest in a publicly traded REIT listed on a major stock exchange by purchasing shares through a broker. You can purchase shares of a non-tradable REIT through a broker who participates in the non-trading REIT offer. You will have an opportunity to purchase shares in a REIT mutual fund or REIT exchange-traded fund.
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