Real estate remains one of the most popular assets for U.S. investors. But most have a hard time buying because of the upfront dollars involved.
ETFs can be the next best thing for small-time investors looking for real-estate exposure:
Sure, those investors can always buy Real Estate Investment Trusts, or REITs, that allow anyone with a brokerage account and as little as a hundred bucks the ability to play different real-estate segments. But these stocks are a special class of company with unique accounting quirks, among them a mandate to deliver 90% of taxable income back to shareholders as well as the capital-intensive nature of purchasing and maintaining properties and the general notion that real estate as an asset that doesn’t depreciate like a piece of machinery. That means traditional Wall Street metrics such as earnings aren’t as helpful in assessing the health of a stock, and investors must learn new terminology and analysis of things like adjusted funds from operation to truly pick stocks in this sector.
And even then, there’s a chance of losing a bundle by picking the wrong stock at the wrong time.
If you’re looking for exposure to real estate but don’t have a lot of cash or a lot of stomach for risk, then ETFs may be the best fit. There’s built-in diversification, there’s no learning curve about a new form of analysis and they’re accessible to investors who simply don’t have the means to buy a bunch of physical properties.
Here are a few options that offer real-estate investments for the rest of us.
Vanguard U.S. Real Estate ETF
The gold standard for cheap and accessible index funds, Vanguard doesn’t disappoint with its Vanguard Real Estate ETF
offering. The fund boasts $35 billion in assets, all for the low expense ratio of 0.12%. That’s just $1.20 annually on each $1,000 invested.
You get wide exposure to the U.S. real estate sector through about 190 holdings, from telecom tower operator American Tower REIT
to warehouse owner Prologis
shopping mall giant Simon Property Group
These big names all have entrenched, reliable operations. And since its component REITs have a mandate to deliver 90% of taxable income back to shareholders, the fund offers decent income potential with a yield of about 4% across its components.
The ETF has climbed 19.2% so far this year through Wednesday.
Invesco S&P 500 Equal Weight Real Estate ETF
Despite about 190 holdings, the Vanguard fund has about 40% of its total assets in its 10 largest positions. So for an investor interested in true diversification, a better balance may be a higher priority than simply having a whole lot of holdings.
That’s where the Invesco S&P 500 Equal Weight Real Estate ETF
comes in. The fund simply takes the 32 largest real-estate stocks that represent the sector in the S&P 500
and applies an “equal weight” methodology to these companies.
It’s not glamorous, but the approach ensures that investors are spread across the biggest REITs on Wall Street. This helps reduce the fund’s risk profile by offering true diversification across its holdings, and a reliance only on the largest names in the sector rather than the inclusion of smaller real-estate firms that can be prone to more volatility.
The ETF, with a yield of nearly 3%, is up 17.6% so far this year through Wednesday.
iShares Global REIT ETF
The iShares Global REIT ETF
broadens the idea of real-estate investing to a global strategy. Though almost two-thirds of the fund is still allocated to U.S. REITs, companies across Europe and Asia are well-represented across its portfolio of about 300 stocks.
In fact, Hong Kong-based real-estate firm Link REIT
currently is among the 10 largest holdings and represents about 2% of the total portfolio.
There is obviously a different risk profile that comes with overseas investing generally, and specifically when it comes to real-estate trends. However, for those who want diversification across geography to smooth out some of the potential volatility in local markets, this is a decent option to consider.
The ETF is up 15.9% so far this year through Wednesday. It has a yield of 4.8%.
iShares Residential Real Estate ETF
Some investors aren’t as interested in diversification, however. Instead, they’d rather make a tactical bet on a small segment of Wall Street under the notion that there is bigger potential for profit than in the market at large.
If this sounds like you, and if you are specifically interested in U.S. residential real estate, then consider the iShares Residential Real Estate ETF
A focused fund with just 43 holdings at present, this fund is comprised of straightforward housing plays such as apartment operator AvalonBay Communities REIT
as well as more specialized investments such as senior housing and assisted living facility operator Welltower
The bottom line, however, is a focus on U.S. housing trends and living space. So if this is what you think of when you consider real-estate exposure, rather than office space or industrial parks, then this fund may be more aligned with your investing goals.
The ETF, which has a yield of about 2.9%, has surged 20.8% so far this year through Wednesday.
Global X SuperDividend REIT ETF
There are some investors who could care less about which subsector of real estate they’re investing in or whether the underlying stocks are located at home are abroad. To them, the appeal of REITs lies in the income potential — and as long as the yield is good, they’ll go wherever they need to.
If this sounds like you, then consider the Global X SuperDividend REIT ETF
This exchange-traded fund seeks out the 30 highest-yielding REITs worldwide and gives them a roughly equal weighting.
Interesting enough, right now a bunch of the fund’s holdings are real-estate plays that don’t own any physical property. These include PennyMac Mortgage Investment Trust
a roughly $2 billion company that primarily purchases, pools and resells mortgage paper. Thanks to the tailwind of low interest rates and a strong U.S. housing market lately, business has been great lately — and as a result so have the dividends.
Picks like this one collectively add up to a 7.9% yield. If you’re interested in real estate for income, that mammoth yield makes this fund worth a look.
The ETF is up 10.3% so far this year through Wednesday.