Investing in real estate ETFs offers the potential for stable returns, making them attractive for income-focused investors seeking investment in real estate. Real Estate ETFs allow investors to engage in the sector without involving in the complexities and diversify their portfolio.
Also, real estate ETFs can help protect against inflation because property values and rental income typically rise during inflationary periods. This makes real estate a reliable hedge, as higher rents and property appreciation can boost returns for investors even as inflation increases.
Given the backdrop, investors could consider investing in fundamentally solid real estate ETFs iShares U.S. Real Estate ETF (IYR), Schwab U.S. REIT ETF (SCHH), and Vanguard Real Estate Index Fund ETF Shares (VNQ) for inflation protection.
Real estate has historically been embraced by investors owing to its ability to deliver exceptional returns. Amid this, REITs emerge as an ideal investment, allowing investors to participate in the real estate market without holding or managing properties. REITs appeal to various investors, especially those who are seeking current income, as these trusts are required to distribute at least 90% of their income to investors.
The global REIT market size is expected to grow at a CAGR of 2.9% until 2028. The market is driven by factors like increasing global demand for warehousing and storage facilities with expanding e-commerce, the need for efficient logistics solutions, residential sector development, and supportive government initiatives.
Further, the North American REIT industry is projected to exhibit a 2.5% CAGR until 2029.
Given these encouraging trends, let’s look at the fundamentals of the top three Real Estate ETFs, beginning with number 3.
ETF #3: iShares U.S. Real Estate ETF (IYR)
IYR seeks to track an index composed of U.S. equities in the real estate sector. The fund invests in stocks of all capitalization and captures a broad segment of the real estate space including REITs and firms investing in real estate through development, management, or ownership, including property agencies. IYR tracks the Dow Jones U.S. Real Estate Index.
The fund has assets under management (AUM) of $4.72 billion. IYR’s top holdings include Prologis, Inc. (PLD) with an 8.20% weighting, followed by American Tower Corporation (AMT) at 7.66%, and Equinix, Inc. (EQIX) and Welltower Inc. (WELL) at 5.91% and 4.40%, respectively.
The ETF has a total of 68 holdings, with its top 10 assets comprising 47.55% of its AUM. IYR’s expense ratio is 0.39%, lower than the category average of 0.42%. Over the past three months, its fund inflows were $1.16 billion, and $1.31 billion over the past year.
IYR pays an annual dividend of $2.36, which translates to a 2.34% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 8.3% over the past three years. Notably, IYR has paid dividends for 23 consecutive years.
IYR has gained 15.6% over the past six months and 31.6% over the past year to close the last trading session at $100.92. It has a beta of 0.91. The fund’s NAV was $100.81 as of October 2, 2024.
IYR’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
IYR has an A grade for Trade and Buy & Hold. Within the A-rated Real Estate ETFs group, it is ranked #4 out of 31 ETFs.
To access all of IYR’s POWR Ratings, click here.
ETF #2: Schwab U.S. REIT ETF (SCHH)
SCHH is launched and managed by Charles Schwab Investment Management, Inc. The fund invests in stocks of companies operating across the real estate and REIT sectors. It invests in growth and value stocks of companies across diversified market capitalizations. It tracks the performance of the Dow Jones U.S. Select REIT Index.
With $8.01 billion in AUM, SCHH’s top holdings are PLD with an 8.10% weighting, AMT at 7.67%, and EQIX and WELL with 5.89% and 4.55% weightings, respectively.
The fund has a total of 118 holdings, with its top 10 assets comprising 47.49% of its AUM. It has an expense ratio of 0.07%, compared to the category average of 0.42%. SCHH’s fund inflows were $578.34 million over the past six months and $865.17 million for the past year.
SCHH pays an annual dividend of $0.66, which translates to a 2.89% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 11.8% over the past three years.
SCHH has gained 16.1% over the past six months and 31.5% over the past year to close the last trading session at $22.91. It has a beta of 0.92. The fund’s NAV was $22.91 as of October 2, 2024.
SCHH’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. Of the 31 ETFs in the Real Estate ETFs group, SCHH is ranked #3.
Click here to see all the SCHH ratings.
ETF #1: Vanguard Real Estate Index Fund ETF Shares (VNQ)
VNQ primarily invests in and offers broad exposure to U.S. equity REITs, along with a small diversification in specialized REITs and real estate firms. The fund provides an efficient way for investors to gain indirect exposure to real estate prices. The ETF tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index.
The fund has an AUM of $38.41 billion. Its top holdings include PLD and AMT, with a weighting of 7.74% and 6.84%, followed by EQIX and WELL, with a weight of 5.06% and 4.63%, respectively.
VNQ has a total of 155 holdings, with the top 10 assets comprising 43.76% of its AUM. The fund has an expense ratio of 0.12%, lower than the category average of 0.42%. Over the past month, VNQ fund inflows came in at $451.51 million, and $556.60 million over the past three months. Also, it has a beta of 0.91.
VNQ pays an annual dividend of $3.65, which translates to a 3.78% yield at the current price level. The fund’s dividend payouts have grown at a CAGR of 3.9% over the past three years. VNQ has paid dividends for 18 consecutive years.
VNQ has surged 14.9% over the past six months and 29.9% over the past year to close the last trading session at $96.45. The fund has a NAV of $96.35 as of October 2, 2024.
VNQ’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VNQ has an A grade for Buy & Hold and Trade. It also has a B grade for Peer. The fund has topped the list of 31 ETFs in the same group.
To access all the POWR Ratings for VNQ, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VNQ shares were trading at $95.55 per share on Thursday afternoon, down $0.90 (-0.93%). Year-to-date, VNQ has gained 11.35%, versus a 20.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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