Investing in real estate ETFs offers a convenient and cost-effective means of incorporating real estate market exposure into one’s investment portfolio.
Given the legal obligation for REITs to distribute 90% of their taxable revenue on an annual basis, these investment vehicles serve as a favorable income stream for investors.
The real estate business has been significantly impacted since the conclusion of 2021 due to a confluence of factors, including escalating interest rates, work-from-home measures implemented in response to the Covid-19 pandemic, and elevated levels of inflation.
However, it is crucial not to allow the current decline in the real estate market to deter you from contemplating the significance of this particular asset category.
According to a report by PwC, a prominent professional services business, numerous experts in the real estate industry intend to endure the present downturn and strategically reposition their firms to capitalize on a future phase of prolonged expansion and favorable financial outcomes.
The principles of supply and demand suggest that the limited supply of land and property is likely to result in long-term price increases.
The compilation of the top real estate ETFs encompasses a diverse range of United States-based REITs, which focus on various sectors including office spaces, residential complexes, commercial establishments, infrastructure, storage facilities, data centers, healthcare facilities, telecommunication towers, and hospitality establishments.
Private banking clients often seek expert advice on building diversified portfolios, which may include the best real estate ETFs and investment funds, as well as specialized options like the best airline ETFs, best defense ETFs, and best artificial intelligence ETFs to achieve their financial goals.
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Table of Contents
What are Real Estate ETFs
REIT ETFs primarily allocate their assets to equity REIT securities and associated derivatives. REIT ETFs are characterized by their passive management approach, which involves tracking an index comprised of publicly-traded entities that own real estate.
The MSCI U.S. REIT Index and the Dow Jones U.S. REIT Index are commonly utilized benchmarks that encompass approximately two-thirds of the total value of the publicly-traded domestic Real Estate Investment Trust (REIT) market.
REIT securities exhibit characteristics that are representative of both equity and fixed income assets.
The high dividend yields offered by these investments result in a steady stream of income, but their prices are subject to fluctuations in line with the performance of the equity market.
REITs are required to distribute a significant portion of their earnings to shareholders on an annual basis.
Several REIT ETFs hold ownership stakes in REITs that possess income-generating properties, which produce revenue through rental and leasing operations.
These properties may encompass several types of real estate, such as warehouses, housing complexes, and hotels.
It is advisable for investors to thoroughly examine prospectus materials in the process of conducting research on REIT ETFs.
Numerous indices are available, each with distinct areas of emphasis, including commercial mortgages and high-risk mortgages. Investors may inadvertently be exposed to these riskier segments of the real estate market.
Best Real Estate ETFs to Buy
Lion-Phillip S-REIT ETF (CLR)
The Lion-Phillip S-REIT ETF, which is widely favored by investors in Singapore’s real estate market, demonstrated exceptional performance over the initial eight months of 2022.
The fund exhibited a decrease of only 3.53% within the specified time frame, in contrast to the 11.58% decline observed in worldwide REITs.
The company CLR is now listed on the Singapore stock exchange and has a portfolio consisting of 25 holdings as of the present time.
The company disbursed a cumulative dividend of S$0.05 per share in the previous fiscal year, resulting in an annual dividend yield of 5.46%.
The fund distributes its payouts biannually and currently manages approximately S$300 million in assets.
Invesco KBW Premium Yield Equity REIT ETF (KBWY)
The KBWY ETF has been specifically created to monitor the performance of the KBW Nasdaq Premium Yield Equity REIT Index.
This index is constructed using a modified dividend yield weighting methodology. The fund primarily targets the lower range of market capitalization, with around 80% of the portfolio dedicated to small-cap REITs, while the remaining 20% is invested in mid-cap companies.
The rebalancing of the index and fund takes place quarterly, namely on the third Friday of the last month of each quarter.
The Invesco KBW Premium Yield Equity REIT ETF’s portfolio comprises notable holdings such as Global Net Lease Inc. (GNL), which primarily allocates its investments towards commercial properties in the United States and Europe.
Additionally, the ETF includes Class A shares of The Necessity Retail REIT Inc. (RTL), which specializes in retail and service-oriented properties within the United States.
Lastly, Omega Healthcare Investors Inc. (OHI), a REIT that concentrates on nursing and assisted living facilities, is also among the top holdings of the ETF.
NikkoAM-Straits Trading Asia Ex-Japan REIT ETF (CFA)
Investors seeking to expand their real estate portfolio outside the confines of Singapore, while remaining within the Asia Pacific region, may find it advantageous to choose the NikkoAM-Straits Trading Asia Ex-Japan REIT ETF.
The fund primarily targets commercial real estate ETFs in many countries, namely Singapore, South Korea, India, Hong Kong, Malaysia, and China.
Additionally, the portfolio has a high level of diversification, encompassing many sectors.
Specifically, it includes investments in the retail sector, accounting for 38% of the portfolio, followed by the industrial sector at 30%, the office sector at 13%, diversified or mixed-use buildings at 9%, hotels and resorts at 5%, and specialist commercial properties at 3%.
The CFA stands as the most prominent among the five real estate ETFs listed in Singapore. In the year 2022, the company distributed a sum of S$0.037 per share, resulting in an annual dividend yield of 5.41%. The cost ratio of this fund is 0.58%.
Vanguard Real Estate Index Fund (VNQ)
The Vanguard Real Estate Index Fund is widely regarded as a highly popular real estate ETF due to its extensive diversity, cost-effectiveness, and consistently strong performance.
The fund comprises over 170 properties, which includes several of the largest REITs in the market. Furthermore, it is nearly ten times larger in size compared to its closest competitor.
The portfolio of the entity in question consists of prominent REITs specializing in infrastructure, data centers, and industrial properties.
This is further enhanced by the inclusion of investments in a wide range of REITs, including those in diversified, hotel and resort, industrial, health care, residential, office, and retail sectors.
In its entirety, VNQ presents a compelling amalgamation of prominent REITs and extensive portfolio diversification.
The ETF distributes dividends on a quarterly basis. In the year 2022, it attained a dividend yield of 3.62%.
Nuveen Short-Term REIT ETF (NURE)
The objective of the Nuveen Short-Term REIT ETF is to replicate the performance of the Dow Jones U.S. Select Short-Term REIT Index.
This index consists of equity REITs traded on U.S. exchanges, with a particular focus on holdings in apartment buildings, self-storage facilities, hotels, and mobile home assets.
The ETF offers investors the opportunity to gain exposure to REITs that primarily engage in short-term leasing arrangements.
REITs with shorter-term lease agreements are expected to exhibit lower sensitivity to fluctuations in interest rates compared to REITs with longer-term lease agreements.
Slightly more than 50% of the fund’s portfolio comprises of apartment REITs, while hotel and self-storage REITs constitute the majority of the remaining holdings.
The primary holdings of NURE consist of two REITs, namely Extra Space Storage Inc. (EXR) and Public Storage (PSA), both of which are engaged in the operation of self-storage facilities.
Additionally, NURE maintains a significant ownership position in AvalonBay Communities Inc. (AVB), a company that specializes in the ownership and management of apartment communities across the United States.
Global X SuperDividend REIT ETF (SRET)
The Global X SuperDividend REIT ETF effectively aligns with its designated nomenclature. The fund, valued at US$300 million, has a concentrated portfolio consisting of 30 worldwide REITs that exhibit the highest dividend yields in the market.
This characteristic renders it an attractive choice for investors that prioritize pursuing high yields.
Based on the aforementioned straightforward approach, SRET has successfully maintained a consistent record of distributing dividends on a monthly basis for a continuous period of seven years.
In addition, the fund exhibits a robust level of diversification across several geographical regions.
Approximately 60% of the fund’s holdings are allocated to the United States, while Asia and Australia account for 20% of the portfolio. The remaining portion consists of REITs from other global locations.
In the year 2022, the fund distributed dividends amounting to US$1.79 per share, resulting in an annual dividend yield of 7.57%.
The expense ratio of the fund, which stands at 0.58%, might be considered quite elevated. However, individuals seeking passive income may be willing to bear this charge.
Virtus Real Asset Income ETF (VRAI)
The Virtus Real Asset Income ETF is designed to track the performance of the Indxx Real Asset Income Index.
This index provides investors with the opportunity to participate in a diversified portfolio of equities across the real estate, natural resources, and infrastructure sectors.
As stated by Virtus Investment Partners, the ETF VRAI distinguishes itself from other real asset strategies by abstaining from direct investments in tangible assets or commodity instruments.
Instead, VRAI only allocates its investments to stocks within real asset categories, with a particular emphasis on generating income.
VRAI offers development prospects and potential safeguard against inflation with its diverse strategy across multiple segments.
In accordance with its diverse composition, VRAI’s portfolio comprises prominent holdings such as Steel Dynamics Inc. (STLD), a company involved in the production and recycling of metals; Delek Logistics Partners LP (DKL), a midstream oil and gas enterprise; and Class A shares of Sitio Royalties Corp. (STR), an investment firm focused on oil and gas royalties within the United States.
Invesco KBW Premium Yield Equity REIT ETF (KBWY)
The Invesco KBW Premium Yield Equity REIT ETF is another real estate ETF that is preferred for its high yields. In contrast to other real estate ETFs that primarily target large-cap REITs, KBWY, in contrast, concentrates on the lower range of market capitalization.
The fund primarily consists of small-cap REITs, comprising 80% of its portfolio, while the remaining 20% is allocated to mid-cap REITs. All assets are situated within the United States.
The KBWY ETF offers investors the opportunity to mitigate the effects of a portfolio that is heavily weighted towards large-cap stocks, while also offering a consistent monthly income stream.
The company attained a yearly dividend yield of 6.73% based on a cumulative dividend amount of US$1.47 per share.
An additional aspect that contributes to its favorable attributes is the relatively low expenditure ratio of 0.35%.
Final Thoughts
A variety of internet brokerages offer readily accessible popular real estate ETFs. To participate in the desired ETF marketplaces, it is necessary to register with a brokerage firm that provides access to those specific markets.
To illustrate, the Vanguard Real Estate Index Fund is traded on the New York Stock Exchange.
Therefore, in order to allocate funds to this particular fund, it is advisable to seek a brokerage firm that provides access to the U.S. markets.
Singapore-listed real estate ETFs, such as the Lion-Phillip S-REIT ETF, are accessible for trading through several authorized dealers, which encompass online brokerage platforms as well as local financial institutions.
Certain regional real estate ETFs are encompassed within the CPF Investment Scheme, enabling individuals to allocate their CPF savings towards investing in these funds.
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