With U.S. population rapidly aging, it is not surprising that many prescient real estate investors embrace healthcare real estate investment trusts (REITs). Some REIT ETFs have been delivering sturdy performances this year, but not all traditional REITs are healthcare REITs.
Look at the MSCI US Investable Market Real Estate 25/50 Index. That index serves as the benchmark for the largest U.S. REIT ETF, but that fund devotes just 9% of its weight to healthcare REITs and four other REIT segments have larger weights in that fund.
“Health care REITs own and manage a variety of health care-related real estate and collect rent from tenants,” according to Nareit. “Health care REITs’ property types include senior living facilities, hospitals, medical office buildings and skilled nursing facilities.”
One reason healthcare REITs are not heavily represented in traditional REIT ETFs is that just are not many of these type of REITs. There are just 18 healthcare REITs with a combined market value of $105.41 billion, according to Nareit data.
Here are some REIT ETFs to consider with hefty healthcare exposure.
iShares Residential Real Estate ETF (REZ)
Expense ratio: 0.48% per year, or $48 on a $10,000 investment.
As its name implies, the iShares Residential Real Estate ETF (NYSEARCA:REZ) is a REIT ETF dedicated to residential real estate, the segment in which healthcare REITs reside. The $433.35 million REZ tracks the FTSE Nareit All Residential Capped Index and holds 44 stocks, nearly a third of which are healthcare REITs.
Residential REITs are among the REITs most sensitive to changes in interest rates, but with the Federal Reserve not expected to boost rates this year and some market observers even speculating on a rate cut, REZ is up 16.65%.
REZ has a three-year standard deviation of 13.84%, which is slightly higher than the category average, but that is a reflection of the aforementioned rate sensitivity. Residential REITs, including some healthcare fare, can carry lower dividend yield than traditional REIT funds as highlighted by the trailing 12-month dividend yield of 3.18% on REZ.
Global X Longevity Thematic ETF (LNGR)
Expense ratio: 0.50%
Admittedly, the Global X Longevity Thematic ETF (NASDAQ:LNGR) is a bit of a stretch as a healthcare REIT fund. It is not a focused ETF by any means, but it is a credible play on the aging population theme and LNGR does allocate over 8% of its weight to healthcare REITs. This thematic ETF, which recently turned three years old, tracks the Indxx Global Longevity Thematic Index.
LNGR “seeks to invest in companies positioned to serve the world’s growing senior population through exposure to health care, pharmaceuticals, senior living facilities and other sectors that contribute to increasing lifespans and extending quality of life in advanced age,” according to Global X.
LNGR is more of a healthcare ETF in disguise than a real estate fund. Nearly 80% of the fund’s 96 holdings are healthcare equipment, biotechnology and pharmaceuticals makers, giving investors some growth avenues in their quest for healthcare REIT exposure.
iShares Cohen & Steers REIT ETF (ICF)
Expense ratio: 0.34%
The iShares Cohen & Steers REIT ETF (CBOE:ICF) tracks the Cohen & Steers Realty Majors Index and is a focused REIT ETF with just 30 holdings. ICF is not a dedicated healthcare REIT ETF. The fund features exposure to seven REIT segments, including a 9.22% weight to healthcare REITs.
ICF is one of the best-performing traditional REIT ETFs this year with a gain of 18.10% and currently resides near record highs. Specialized, residential and retail REITs combine for almost two-thirds of ICF’s weight.
The fund’s standard deviation is less than that of the aforementioned REZ and ICF has a trailing 12-month dividend yield of 2.72%.
Janus Long-Term Care ETF (OLD)
Expense ratio: 0.35%
The Janus Long-Term Care ETF (NASDAQ:OLD) is another thematic ETF dedicated to the aging population theme.
OLD “seeks exposure to companies globally that are positioned to profit from providing long-term care to the aging population. These include companies owning or operating senior living facilities, nursing services, specialty hospitals or senior housing, as well as biotech companies for age-related illnesses and companies that sell products and services to such facilities,” according to Janus.
OLD allocates almost 65% of its weight to real estate stocks and over a third of its weight to the healthcare sector. Welltower Inc. (NYSE:WELL) and Ventas, Inc. (NYSE:VTR), two of the largest healthcare REITs, combine for almost a third of OLD’s weight and the fund features several other healthcare REITs among its top 10 holdings. In other words, OLD is one of the most credible healthcare REIT ETFs on the market today.
SPDR Dow Jones REIT ETF (RWR)
Expense ratio: 0.25%
At just over 18 years old, the SPDR Dow Jones REIT ETF (NYSEARCA:RWR) is one of the oldest REIT ETFs on the market. With 95 holdings, RWR features a deeper bench than some of the other funds highlighted here. Those holdings have a weighted average market value of $20.48 billion.
Among traditional REIT ETFs, RWR’s healthcare REIT exposure of 11.10% is pretty solid. The fund’s one-year funds from operations (FFO) growth is 2.54%. FFO is the key REIT valuation metric used to assess the financial quality of REITs and the ability of those companies to sustain and grow dividends.
Welltower and Ventas are among RWR’s top 10 holdings. The fund has a dividend yield of 3.63% and is up 16.47% year-to-date.
First Trust S&P REIT Index Fund (FRI)
Expense ratio: 0.50%
The First Trust S&P REIT Index Fund (NYSEARCA:FRI) is often overlooked in the REIT ETF conversation, but for investors that want healthcare REIT exposure under the umbrella of a traditional real estate fund, FRI is a sensible option.
FRI, which recently turned 12 years old, devotes almost 13% of its weight to healthcare REITs, which is pretty solid among standard REIT funds. Welltower and Ventas are also found among the is real estate fund’s top 10 holdings. Residential, retail and specialized REITs combine for about 52% of FRI’s roster.
FRI is a decent fund, but there are cheaper real estate ETFs on the market, some with more robust healthcare exposure and some that simply outperform this product. Over the past three years, FRI is trailing the largest domestic REIT ETF by 120 basis points.
Schwab U.S. REIT ETF (SCHH)
Expense ratio: 0.07%
For cost-conscious investors, the Schwab U.S. REIT ETF (NYSEARCA:SCHH) is one of the best REIT ETFs to consider because it is one of the least expensive. Plus, Schwab clients get the added benefit of being able to trade this fund commission-free.
Home to 99 stocks, SCHH is a mostly prosaic approach to REITs, but there is nothing wrong with that. The $5.40 billion fund allocates 11.20% of its weight to healthcare REITs with the bulk of that exposure allocated to Ventas and Welltower, in that order.
SCHH allocates about 40% of its weight to residential and retail REITs. Up 16.80% this year, SCHH yields 2.82%.
Todd Shriber does not own any of the aforementioned securities.