U.S. Real Estate ETFs Battle For Inflows: IYR vs. ICF vs. RWR

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With the economic turnaround in the U.S. gaining momentum, real estate investments were among the first to come back. They were also among the first funds to be crushed in the financial crisis, but as home sales and prices are heading up for the first time in five years, real estate is being pulled back into investors’ portfolios. Those looking for current income should not shy away from this market; these securities must pay out 90% of their income to shareholders in order to avoid taxation at the corporate level. Below we outline three U.S. real estate ETFs that have been battling for investor attention: iShares Dow Jones US Real Estate Index Fund (IYR, A), iShares Cohen & Steers Realty Majors Index Fund  (ICF, B) and SPDR Dow Jones REIT ETF (RWR, A-) [Download How To Pick The Right ETF Every Time].

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Meet the Competitors

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Holding between $2.2 billion and $5.4 billion in total assets under management each, these three funds have a respectable amount of money behind them. IYR holds a mix of market cap real estate stocks and real estate investment trusts (REITs), which trade like stocks and invest in real estate directly. The other iShares fund featured, ICF, focuses this same strategy more heavily on the largest and most traded REITs. State Street’s RWR has narrowed its market view even more, holding only funds featured in the Dow Jones Select REIT Index. These three ETFs represent a comparable group of funds, but do not include the largest U.S. real estate fund, Vanguard REIT ETF  (VNQ, A+). With just over $19 billion in assets, VNQ is the largest real estate ETF available and four times larger than IYR, the second largest fund [also see 5 High Yielding Real Estate ETFs].

Seeing as these funds track the U.S. real estate market, it is no surprise that after 2008 there was little interest in these ETFs, with only RWR avoiding an entirely negative year since. All three funds have featured outstanding returns since the rug was pulled out from under them in 2008; industry giant VNQ has seen a 7% yield since the start of 2013 [try our Free ETF Head-To-Head Comparison Tool].

The Bottom Line

Across the board, real estate ETFs have fared quite well over the last four years, generating attractive double-digit returns after feeling strong losses in 2008. While there is still a lot of rebuilding to get the real estate market back to its glory days, investors who see this upward trend continuing should seriously consider another look at REIT ETFs [also see Emerging Market ETFs: Biggest Winners & Losers YTD].

Follow me on Twitter @lynpaintzall

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Disclosure: No positions at time of writing.

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