Investing in REITs, or real estate investment trusts, remains one of the best inflation protection tactics in 2022. However, choosing which individual REITs to buy can still be a daunting task susceptible to asset selection risk. So investors may choose to buy exchange-traded funds (ETFs) focused on REITs instead. These REIT ETFs offer wide diversification benefits right from the onset.
Besides REITs’ well known inflation protection capabilities, investing in REIT ETFs helps diversify stock and bond market risks in a portfolio and boost investment income. Some of the selected ETFs on this list boast high income yields, while others will offer international diversification among REITs, and some are sector specific.
Sector-specific REIT ETFs will tilt the odds in your favor if growth is what you are targeting. Datacenter focused REITs, industrial real estate developers and cell tower landlords still promise strong growth, while office and healthcare REITs could make it a value plays.
Although the stock market has sold off so far in 2022, investors still find pockets of value and attractive investment options as seen in a net increase of funds invested in exchange-traded funds (ETFs) over the past three months. According to the VettaFi (formerly ETF Database), about $4 billion in net new funds trickled into REIT ETFs during the past three months.
Let’s take a closer look at which ETFs you can buy right now for diverse exposure to REITs.
|VNQ||Vanguard Real Estate Index Fund||$99.60|
|SCHH||Schwab U.S. REIT ETF||$22.98|
|XLRE||Real Estate Select Sector SPDR Fund||$44.40|
|SRET||Global X Super Dividend REIT ETF||$8.71|
|RIET||Hoya Capital High Dividend Yield ETF||$13.74|
|SRVR||Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF||$37.08|
|REZ||iShares Residential and Multifactor Real Estate ETF||$85.82|
|REZ||Pacer Benchmark Industrial Real Estate SCTR ETF||$43.77|
REITs: Vanguard Real Estate Index Fund (VNQ)
Expense Ratio: 0.12%, or $12 per $10,000 invested annually.
The Vanguard Real Estate Index Fund (NYSEARCA:VNQ) is the largest among REIT ETFs in the world, boasting of over $82 billion in assets under management. VNQ passively tracks the MSCI US Investable Market Real Estate 25/50 Index. Its benchmark essentially covers all REITs and real estate sectors tradable on U.S. exchanges.
The VNQ provides wide exposure to the REIT asset class. Pure REITs constitute about 95.5% of the ETF’s holdings. The remainder is allocated to real estate services stocks (3.8%), real estate developers (0.3%), real estate operating companies (0.2%), and diversified real estate activities (0.1%). Thus, investors in the VNQ ETF will own a diversified real estate portfolio and enjoy exposure to plenty of REITS and everything real estate-related.
The fund is passively managed with a low expense ratio of 0.12% or $12 for every $10,000 invested. Total returns from owning the VNQ ETF stock are augmented by a roughly 3% dividend yield, which compares very well to the S&P 500’s 1.5% annual dividend yield today.
Schwab U.S. REIT ETF (SCHH)
Expense Ratio: 0.07%
The next of our ETFs to invest in REITS — Schwab U.S. REIT ETF (NYSEARCA:SCHH) — is one of the largest and most diversified real estate exchange-traded funds with more than $6.3 billion in assets invested in more than 140 individual REITs. The ETF offers investors simple, straightforward and low-cost access to REITs and excludes several non-REIT stocks that are sometimes included in other competing real estate offerings.
It’s a passively managed fund that tracks the Dow Jones Equity All REIT Capped Index. Mortgage REITs are excluded from the index, and investors will find SCHH’s expense ratio of 0.07% (or $7 for every $10,000 invested) far cheaper than Vanguard’s VNQ. Investors may expect to receive quarterly distributions that currently yield about 3.3% annually.
The fund’s manager has more than five years of manager tenure. Investors should feel they’re in good, experienced hands. The fund’s largest holding is American Tower REIT Corp (NYSE:AMT) at 8.3% followed by a 6.7% allocation to Prologis REIT (NYSE:PLD) stock.
Real Estate Select Sector SPDR Fund (XLRE)
Expense Ratio: 0.1%
The Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE) is one of the largest REIT ETFs by assets under management. It boasts of more than $5.4 billion in net assets. The XLRE ETF offers investors exposure to “the real estate sector of the S&P 500 Index.” It has 30 holdings, including real estate management and development companies (comprising under 3% of the fund) and equity REITs which comprise over 97% of the portfolio. The fund excludes mortgage REITs from its portfolio.
Investors will find the REIT ETF’s low expense ratio of 0.1% too low to significantly matter. XLRE stock has declined by about 15% so far this year. However, the ETF pays out quarterly dividends that yield 2.8% annually.
Top holdings include American Tower Corp, Prologis, and cell-tower giant Crown Castle International Corp. (NYSE:CCI).
Global X Super Dividend REIT ETF (SRET)
Expense Ratio: 0.58%
Income-oriented investors seeking high distribution yields and some global diversification may find the Global X Super Dividend REIT ETF (NASDAQ:SRET) more appealing than many pure U.S. REIT ETFs. It offers high yields and geographical and interest rate risk diversification off the bat.
The SRET portfolio holds 29 of the highest yielding REITs in the world. It invests about 53% of its assets in U.S. REITs, allocates 33% of the portfolio in developed Asia (Singapore REITs), and spreads the balance equally into Canadian and Australian REITs.
Most noteworthy, the SRET ETF pays distributions that yield 7.1% annually at the time of writing. The portfolio has more than $360 million of net assets and a reasonable expense ratio of 0.58% annually.
Hoya Capital High Dividend Yield ETF (RIET)
Expense Ratio: 0.25%
The Hoya Capital High Dividend Yield ETF (NYSE:RIET) is a recently launched REIT ETF that invests in high dividend yield paying real estate equity securities to produce high yields for its investors. The fund invests around 90% of its assets in REIT common equity, and about 10% is invested in preferred stock. Preferred stock positions significantly augment the fund’s recurring income. However, preferred equity limits growth potential.
The fund manager waived management fees for now to reduce the trust’s total expense ratio to 0.25% or $25 for each $10,000 invested in the fund. RIET ETF’s total expense ratio will revert to 0.5% after September 2022 — the first ETF launch anniversary. The fund tries to replicate the Hoya Capital High Dividend Yield Index, a proprietary, internally managed index of high-quality high yielding publicly traded real estate assets.
You can invest in the RIET ETF for its juicy dividend income offering. The trust pays a dividend that yields 7.3% annually. Its top 10 holdings include the Simon Property Group (NYSE:SPG), Starwood Property Trust (NYSE:STWD) at 1.5% and Iron Mountain (NYSE:IRM), all at around 1.5% of the portfolio.
Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
Expense Ratio: 0.6%
The Pacer Benchmark Data and Infrastructure Real Estate SCTR ETF (NYSEARCA:SRVR) is a strategy-driven exchange-traded fund (ETF) that offers investors exposure to global developed market REITs and real estate companies in the fast-growing data and infrastructure sector.
The SRVR ETF tracks the Kelly Data Center & Tech Infrastructure Index and it boasts more than $1.2 billion in net assets. It has a total expense ratio of 0.6% per annum and pays distributions that yield 1.1% annually.
Investors in SRVR ETF stock gain access to an internationally diversified portfolio. The fund has about 80% of its assets invested in U.S. REITs. The manager spreads the balance across Europe, Australasia and Asia.
That said, there’s a bit of concentration risk as its 10 largest holdings comprise nearly 79% of the total assets. However, there aren’t too many data center REITs to invest in worldwide, anyway.
Top holdings include a 17% allocation to the Crown Castle, another 17% allocation to American Tower stock, and 14% in Equinix (NASDAQ:EQIX) stock.
iShares Residential and Multisector Real Estate ETF (REZ)
Expense Ratio: 0.48%
The iShares Residential and Multifactor Real Estate ETF (NYSEARCA:REZ) gives investors more refined and direct access to the U.S. residential sector. Managed by BlackRock (NYSE:BLK), one of the world’s largest asset managers, the REZ ETF invests in U.S. residential, healthcare, and self-storage real estate equities, and has over $1 billion in net assets.
Bullish on the sustained resilience of the U.S. housing sector? Or a strong rebound in healthcare REIT economics post-COVID-19? And a sustained growth in self-storage space demand? Investing in the REZ ETF offers exposure to all three growth opportunities while giving investors some long-term inflation protection.
REZ ETF’s expense ratio of 0.48% annually is reasonably low. It pays quarterly distributions that currently yield about 1.8% annually.
Top holdings include the Public Storage REIT (NYSE:PSA) at 10.4% of the portfolio, followed by Welltower Inc. (NYSE:WELL) at 8.1% while AvalonBay Communities REIT (NYSE:AVB) stock comprises 6% of the ETF’s deployed assets.
Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
Expense Ratio: 0.6%
Since its inception in 2018, the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA:INDS) has grown its total assets under management from around $40 million in 2018 to over $320 million today. Industrial REITs attract investor attention for their growth opportunities. The INDS ETF offers investors direct and diversified access to industrial real estate economics. It has an annual expense ratio of 0.6% or $60 per every $10,000 invested in the fund.
Investors may receive quarterly distributions that yield 1.3% annually. The yield is low, but it’s a small bonus for growth-oriented investors seeking capital gains.
The Pacer Benchmark Industrial Real Estate SCTR ETF stock’s year-to-date decline of 22% has been worse than the broader equity market’s fall so far in 2022.
A general capital flight into consumer defensive names offers contrarian, long-term focused investors an opportunity to buy the dip for above-average future capital gains potential.
On the date of publication, Brian Paradza did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.