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Top REIT ETFs Show Similarities, Differences

Debbie Carlson

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 ETF.com 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.

 

3.  Schwab U.S. REIT ETF (SCHH)

The newest fund on the block, SCHH, launched in 2011 and has AUM of $3.32 billion. As of May 31, it is down 1.26% year-to-date. Its five-year track record is up 9.67%. Its expense ratio of 0.07% makes it the leader in low-cost REIT ETFs.

It follows the Dow Jones U.S. Select REIT Index, which is slightly different than the Dow Jones U.S. Real Estate Index. The Select REIT Index is a market-capped index that represents U.S. REITs as well as real estate operating companies, but eschews mortgage-backed REITs. Also, the fund may invest up to 10% of its net assets in securities not included in its index. However, these investments are ones the investment advisor believes will help the fund track the index. Its weighted average market cap is $17.13 billion.

The fund has 105 stocks. Its price-to-earnings ratio is 37.06, with price-to-book at 2.42. Its biggest sector holding is retail REITs, at 21.1%, with residential at 20.1% and office at 16.6%. SCHH’s top three holdings are Simon Property Group, Public Storage and warehouse REIT Prologis. The three top holdings make up 17.3% of assets.

4. SPDR Dow Jones REIT ETF (RWR)

RWR is another longtime U.S. REIT ETF, having been launched in 2001. It has an expense ratio of 0.25%, and as of May 31, it has $3.05 billion in AUM. It’s down 1.42% year-to-date, and the five-year average is 9.48%.

It follows the same index as SCHH, the Dow Jones U.S. Select REIT Index, making it a market-cap-weighted fund. RWR has a weighted average market cap of $17.13 billion. The fund has 106 stocks, and its price-to-earnings ratio is 37.01, with price-to-book at 2.42.

Although it follows the same index as SCHH, RWR hews a little more closely to the index. Office REITs make up the top sector, at 26.63%, with residential at 21.17% and retail at 20.14%. Despite its differences with SCHH, RWR’s top three holdings—Simon Property group, Public Storage and Prologis—are roughly the same as SCHH, with their combined weight at 17.27%.

5. iShares Cohen & Steers REIT ETF (ICF)

This ETF is slightly different than the other large ETFs. Whereas the other ETFs have over 100 stocks and a mix of market-cap size, ICF’s 30 large-cap REITs are selected by committee to comprise the index. ICF debuted in 2001. As of May 31, it has an AUM of $3.23 billion and is up 1.10% year-to-date. Its five-year track record is up 9.74%. ICF’s expense ratio is 0.35%.

Given that it tracks large-cap stocks, it has the biggest weighted average market cap, at $22.5 billion. ICF’s price-to-earnings ratio is 36.37, with price-to-book at 2.88.

Like some of the other REITs, the sector breakdown shows retail REITs dominate the fund, at 20.09%, with specialized holdings close, at 20.01%, and residential at 19.07%. Its top three holdings are Simon Property Group, Equinix and Public Storage, equaling 21.59% of total holdings.

 

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