Data extracted from all of VettaFi’s digital properties from the data and analytics tool Explorer indicate that investor interest in real estate ETFs has remained steady in the past three months. VettaFi’s LOGICLY tool allows us to examine some of the leading ETFs in the U.S. real estate space.
Top-Performing Real Estate ETF
The iShares Mortgage Real Estate ETF (REM) has the best year-to-date performance in the category. It tracks the FTSE NAREIT All Mortgage Capped Index, which includes REITs that primarily invest in mortgage-backed securities. REM has nearly $650 million in total AUM and first began trading in May 2007. The fund has an expense ratio of 0.48%. Despite being the top-performing REIT ETF of 2023, it has posted a YTD return of 8.89%, around half of what the S&P 500 has returned. However, over the last three months, REM has returned 17.09%.
REM’s performance has not inspired confidence from investors, possibly due to the fact that interest rates could go even higher. The fund has seen $7.5 million in outflows year-to-date.
Largest Real Estate ETF
The largest real estate ETF on the market is the Vanguard Real Estate ETF (VNQ). VNQ has an AUM of over $32 billion dollars, which is significantly more than any other fund on the market. The second-largest real estate ETF is nearly $27 billion less than that. VNQ has been around for nearly 20 years and has an expense ratio of 0.12%. The fund itself focuses on a wide range of exposure to U.S. Equity REITs. The index that the firm tracks is the MSCI US Investable Market Real Estate 25/50 Index. In terms of performance, the fund has posted a 3.43% YTD return. When looking at VNQ’s long-term performance in the last five years, this fund has had a 4.29% return.
Cheapest Real Estate ETFs
The cheapest real estate ETF on the market is the Schwab US REIT ETF (SCHH). It has an expense ratio of 0.07%, which is nearly 35% lower than the industry average. SCHH has an AUM of $5.9 billion, which makes it the second-largest real estate ETF on the market. This ETF focuses on the U.S. equity market, and it tracks the Dow Jones U.S. Select REIT Index. The fund has been around for about 22 years and has a YTD return of 2.67%. In the last three years, SCHH has posted a 4.34% return.
SCHH is also getting the most interest from ETF investors as represented by new investment dollars, and that’s likely in part due to its status as the cheapest fund in the category. While investors may be curious about real estate funds, the flows into the products have been mild, to say the least. Despite having nearly $6 billion in assets, SCHH has pulled in only about $243 million in assets in 2023. Still, that puts it well ahead of the rest of the pack.
The fund that has finished behind SCHH in affordability is the iShares Core U.S. REIT ETF (USRT). The fund has an expense ratio of 0.08%, making it one of the most cost-effective options in the asset class. The index that the fund tracks is the FTSE Nareit/Equity REITs. Since its inception date of May 01, 2007, the fund has collected $2.1 billion in overall assets. This fund also has a YTD return of 6.03% and a 6.90% return in the last three years. While SCHH’s low cost corresponded with its status as the leader for flows in this category, USRT similarly claims second place in terms of flows, adding $126.6 million in new flows.
Overall, there are a number of different real estate ETFs on the market for investors to consider. The real estate ETFs mentioned on this list each have unique characteristics that can fit many of the wants and needs investors may be looking for when looking to get in on this asset class. Regardless, as with any investment investors should carefully consider the potential benefits and risks of investing in these funds before making any investment decisions.
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