In the current low interest rate environment, having a real estate ETF is a unique way to diversify a portfolio and achieve the income potential provided by real estate, combined with the liquidity of stocks. This is typically accomplished through a REIT.
A REIT, or real estate investment trust, is a collection of companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet a number of requirements to qualify as REITs. The stockholders of a REIT earn a share of the income produced through real estate investment, without actually having to go through the headache of purchasing, managing or financing property themselves. To expand even further, a real estate ETF allows investors to hold an assortment of REITS, thereby further diversifying an investment portfolio. Here are the 10 best real estate ETFs for 2019:
1. Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR)
The Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR) is a strategy-driven exchange traded fund (ETF) that aims to offer investors exposure to U.S. companies that generate the majority of their revenue from real estate operations in the data and infrastructure sector. The ETF focuses on publicly Traded REITs that have traditionally been good sources of income for investors and may be capital appreciation vehicles as well. Dividends from the stocks are a source of income to investors. Because REITs are not directly correlated to traditional equity markets the ETF may offer portfolio diversification and reduce volatility. At least 85% of revenues come from real estate operations. The expense ratio is 0.60%.
2. Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
The Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) is a strategy-driven exchange traded fund (ETF) that aims to offer investors exposure to U.S. companies that generate the majority of their revenue from real estate operations in the industrial sector. Like its sibling the ETF focuses on publicly Traded REITs that have traditionally been good sources of income for investors and may be capital appreciation vehicles as well. Dividends from the stocks are a source of income to investors. Because REITs are not directly correlated to traditional equity markets the ETF may offer portfolio diversification and reduce volatility. At least 85% of revenues come from real estate operations. The expense ratio is 0.60%.
3. Vanguard Real Estate Index Fund (VNQ)
The Vanguard Real Estate Index Fund (VNQ) invests in stocks issued by real estate investment trusts (REITs), companies that purchase office buildings, hotels, and other real property. The goal of the fund is to closely track the return of the MSCI US Investable Market Real Estate 25/50 Index. The ETF offers high potential for investment income and some growth; share value rises and falls more sharply than that of funds holding bonds. This Vanguard ETF may be appropriate for helping diversify the risks of stocks and bonds in a portfolio. It has a reasonable expense ratio of 0.12%.
4. Real Estate Select Sector SPDR Fund (XLRE)
The Real Estate Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Real Estate Select Sector Index (the “Index”). The Index seeks to provide an effective representation of the real estate sector of the S&P 500 Index. The fund aims to provide precise exposure to companies from real estate management and development and REITs, excluding mortgage REITs. The SPDR ETF allows investors to take strategic or tactical positions at a more targeted level than traditional style based investing. The expense ratio is low at 0.13%.
5. iShares Cohen & Steers REIT ETF (ICF)
The iShares Cohen & Steers REIT ETF seeks to track the investment results of an index composed of U.S. real estate investment trusts (“REITs”). The fund offers exposure to large real estate companies that are dominant in their respective property sectors. It provides access to U.S. real estate investment trusts (REITs), which invest in real estate directly and trade like stocks. Investors can use the ETF to diversify their portfolios and express a view on the U.S. real estate market. The expense ratio is moderate at 0.34%.
6. Invesco Active U.S. Real Estate Fund (PSR)
The Invesco Active U.S. Real Estate ETF (Fund) structures and selects its investments primarily from a universe of securities that are included within the FTSE NAREIT All Equity REITs Index at the time of purchase. The selection methodology uses quantitative and statistical metrics to identify attractively priced securities and manage risk. The Fund will invest principally in equity real estate investment trusts (REITs). Portfolio management generally conducts a security and portfolio evaluation monthly. The expense ratio is 0.35%.
7. Fidelity MSCI Real Estate Index ETF (FREL)
The Fidelity MSCI Real Estate Index ETF (FREL) seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Real Estate Index. Investing at least 80% of assets in securities included in the fund’s underlying index. The fund’s underlying index is the MSCI USA IMI Real Estate Index, which represents the performance of the real estate sector in the U.S. equity market. Using a representative sampling indexing strategy to manage the fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the index. The fund may or may not hold all of the securities in the MSCI USA IMI Real Estate Index. The expense ratio is very low at 0.08% and has a low turnover ratio as well, compared to the asset class.
8. NuShares Short-Term REIT ETF (NURE)
The NuShares Short-Term REIT ETF (NURE) provides exposure to U.S. real estate investment trusts (REITs) with short-term lease agreements which may exhibit less price sensitivity to interest rate changes than REITs with longer-term lease agreements. The fund seeks to track the investment results, before fees and expenses, of the Dow Jones U.S. Select Short-Term REIT Index which is composed of U.S. exchange-traded equity REITs that concentrate their holdings in apartment buildings, hotels, self-storage facilities and manufactured home properties which typically have shorter lease terms than REITs that invest in other sectors. The Dow Jones U.S. Select Short-Term REIT Index (the “Index”) is composed of U.S. exchange-traded equity REITs that concentrate their holdings in apartment buildings, hotels, self-storage facilities and manufactured home properties, which typically have shorter lease durations than REITs that invest in other sectors. The Index is rebalanced on a quarterly basis and uses a rules-based methodology that weights REITs by market capitalization, subject to a 5% maximum weight per constituent. It is not possible to invest directly in an index. The ETF expense ratio is 0.35%.
9. JPMorgan BetaBuilders MSCI US REIT ETF (BBRE)
The JPMorgan BetaBuilders MSCI US REIT ETF (BBRE) seeks investment results that closely correspond to the U.S. equity REIT market by investing at least 80% of its assets in securities included in the MSCI US REIT Index. The Index is a free-float adjusted market-cap weighted index made up of the stocks of publicly traded equity real estate investment trusts (REITs). The fund invests using a “passive” investment approach, which attempts to replicate the Index as closely as possible. The expense ratio is 0.35%.
10. iShares U.S. Real Estate ETF (IYR)
The iShares U.S. Real Estate ETF seeks to track the investment results of an index composed of U.S. equities in the real estate sector. The fund offers exposure to U.S. real estate companies and REITs, which invest in real estate directly and trade like stocks. The ETF provides targeted access to domestic real estate stocks and REITs. Investors can use the fund to diversify their portfolios, seek income, or express a sector view. The expense ratio is 0.43%.
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