The real estate market has shown remarkable resilience, with no crash on the horizon despite elevated interest rates. Likewise, pent-up demand from buyers and sellers sidelined in 2024 is poised to drive transactions in 2025. In addition, mortgage rates are expected to stabilize, potentially improving affordability and encouraging greater market activity.
Hence, investors could consider strong real estate ETFs like iShares U.S. Real Estate ETF (IYR), The Real Estate Select Sector SPDR Fund (XLRE), and Vanguard Real Estate Index Fund ETF Shares (VNQ) for diversified exposure in 2025.
The real estate market stands out for its diversification benefits, offering uncorrelated investments that reduce risk, making it tangible choice for wealth creation and enhancing portfolios.
Notably, home prices are expected to grow at a steady 4% annually, returning to pre-pandemic trends. Existing home sales are projected to rise by 9% in 2025 and 13% in 2026, while new home sales could increase by 11% and 8% over the same years, supported by job growth and economic stability. Furthermore, mortgage rates may stabilize, averaging around 6.8%.
Thus, given these trends, let’s evaluate the fundamentals of the three Real Estate ETFs, starting with the third.
ETF #3: iShares U.S. Real Estate ETF (IYR)
IYR is an exchange-traded fund launched by BlackRock, Inc. and managed by BlackRock Fund Advisors. The fund invests in the public equity markets of the United States, focusing on stocks of companies operating across the real estate sector. It includes growth and value stocks of companies across diversified market capitalizations. The fund seeks to track the performance of the Dow Jones U.S. Real Estate Capped Index using a representative sampling technique.
With $4.95 billion in assets under management (AUM), IYR’s top holding is Prologis, Inc. (PLD) with a 7.76% weighting, followed by American Tower Corporation (AMT), with a 7.09% weighting, and Equinix, Inc. (EQIX), with 6.68%. It has a total of 66 holdings.
It has an expense ratio of 0.39%, lower than the category average of 0.41%. It currently has a NAV of $98.40. Moreover, IYR’s fund inflows came in at $1.54 billion over the past six months.
The fund’s annual dividend of $2.36 yields 2.40% on the current share price. Its four-year average yield is 2.58%. Also, its dividend payouts have increased at a CAGR of 8.3% over the past three years.
IYR has gained 13.5% over the past six months and 14% over the past year to close the last trading session at $98.39.
IYR’s POWR Ratings reflect this promising outlook. IYR’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
IYR has an A grade for Buy & Hold and Trade. Of the 31 ETFs in the A-rated Real Estate ETFs group, it is ranked #4. Click here to access all of IYR’s POWR Ratings.
ETF #2: The Real Estate Select Sector SPDR Fund (XLRE)
XLRE is an exchange-traded fund launched by State Street Global Advisors, Inc. The fund is managed by SSGA Funds Management, Inc. It invests in U.S. public equity markets, focusing on stocks of companies in real estate, REITs, and real estate management and development sectors. It invests in growth and value stocks of companies across diverse market capitalizations. The fund seeks to track the performance of the Real Estate Select Sector Index by using the full replication technique.
With $7.73 billion in assets under management (AUM), XLRE’s top holding is PLD with a 9.30% weighting, followed by AMT, with an 8.67% weighting, and EQIX, with 8.39%. SCHH has a total of 66 holdings.
XLRE has an expense ratio of 0.09%, lower than the category average of 0.41%. It currently has a NAV of $43.15. Its fund inflows came in at $1.72 billion over the past year.
The ETF pays an annual dividend of $1.38, which yields 3.20% on the current price. XLRE has a four-year average dividend yield of 3.30%. Its dividend payouts have increased at a CAGR of 4% over the past five years.
XLRE has gained 13.9% over the past year and 13% over the past six months to close the last trading session at $43.15.
XLRE’s POWR Ratings reflect its promising prospects. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system.
XLRE has an A grade for Buy & Hold and Trade. In the same group, it is ranked #3. Click here to access all of XLRE’s POWR Ratings.
ETF #1: Vanguard Real Estate Index Fund ETF Shares (VNQ)
VNQ is an exchange-traded fund launched and managed by The Vanguard Group, Inc. It invests in the public equity markets of the United States, focusing on stocks of companies operating in the real estate and equity real estate investment trust (REIT) sectors. It includes growth and value stocks of companies across diversified market capitalizations. The fund seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 Index using a full replication technique.
With $36.68 billion in AUM, the fund has a total of 155 holdings. VNQ’s top holding is PLD with a 6.91% weighting, followed by AMT, with a 6.59% weighting, and EQIX, with 5.56%. The fund has a total of 155 holdings.
VNQ has an expense ratio of 0.12%, lower than the category average of 0.41%. It currently has a NAV of $94.48. Its fund inflows came in at $572.38 million over the past year.
The fund’s annual dividend of $3.65 yields 3.86% on the current share price. Its four-year average yield is 3.67%. Its dividend payouts have increased at a CAGR of 3.9% over the past three years.
VNQ has gained 13% over the past year and 13.5% over the past six months to close the last trading session at $94.49.
VNQ’s strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold and Trade and a B for Peer. It is ranked first in the Real Estate ETFs group. To access all the POWR Ratings for VNQ, click here.
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VNQ shares were trading at $94.26 per share on Wednesday afternoon, down $0.23 (-0.24%). Year-to-date, VNQ has gained 9.84%, versus a 29.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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