Torsten Asmus/iStock via Getty Images
Investing in Real Estate Stocks or REITs
A real estate investment trust, or REIT, is a company that owns or operates real estate to generate income. Because REITs are required to pay out 90% of taxable income to shareholders, investors typically buy real estate stocks or REITs for a source of passive income. Some investors may invest in REITs for diversification purposes.
Tip: A growing economy generally tends to increase the price value of REITs because the value of their underlying assets are also rising. This is especially true when interest rates are low because this decreases borrowing costs for REITs.
The State of REITs in 2022
Although REITs have performed mostly well in recent economic and market conditions, investors should approach real estate investments with increasing caution as interest rates rise in 2022. Higher rates generally tend to decrease the value of properties and increase REIT borrowing costs, which can be negative for REIT profits and thus, their stock prices.
REIT ETF Basics
Exchange-traded funds, or ETFs, can be a convenient way for investors to gain diversified exposure to REITs and the real estate sector in general. Rather than picking individual REITs, investors can buy a basket of dozens of REITs in a single security with an ETF. Investors may also invest in niche areas of the market, such as residential REITs or retail REITs.
Among funds trading on U.S. markets, there are 35 ETFs that focus on REITs and real estate equity. By far, the largest REIT ETF on the market is Vanguard Real Estate ETF (VNQ), which has $81.8 billion in assets.
Evaluating REIT ETFs
Investors can research and analyze REIT ETFs with an ETF screener. To use the Seeking Alpha ETF screener to find real estate ETFs, investors can select the “Sector Equity” asset class, then select the “Real Estate” sub-class. From there, investors can review fund basics, performance, holdings, yield, and risk.
The criteria used for choosing the best REIT ETFs are:
- Performance: 1-year return through February 28, 2022 is the primary selection criteria for evaluating the performance of our featured REIT ETFs. However, investors are wise to do further review of longer periods, such as 3-, 5-, and 10-year returns, before choosing an ETF for their portfolio.
- Expenses: Low expenses, as measured by the fund’s expense ratio, can be an important measurement for ETFs. This is because, when ETFs track the same index, the one with the lowest expense ratio will generally outperform.
- Objective: Only ETFs that primarily hold REITs and real estate stock were considered. The ETFs may be actively or passively managed. Alternative objectives and strategies, such as inverse ETFs and leveraged ETFs, were ignored for this list.
- Portfolio holdings: Real estate ETFs typically hold REITs and other stocks of companies involved in the real estate industry. Holdings may include U.S. companies or global stocks.
- Quant Ratings and Factor Grades: Seeking Alpha’s Quant Ratings and Factor Grades can be used for evaluating stocks or ETFs. In this article, we share what are called, “Factor Grades,” which provide letter grades for five “factors” – Momentum, Expenses, Dividends, Risk, and Asset Flows. To do this, Seeking Alpha compares the relevant metrics for the factor to the same metrics for the other ETFs in its asset class. The factor grades range from a high of A+ to a low of F.
3 Best-Performing REIT ETFs (in % terms)
| Top Performers | 1-Year Performance |
| Pacer Benchmark Industrial Real Estate (INDS) | 31.65% |
| Nuveen Short-Term REIT ETF (NURE) | 30.44% |
| iShares Residential and Multi-Sector ETF (REZ) | 29.37% |
To make our list of best REIT ETFs, we measure the top performance for 1-year returns, through February 28, 2022. Investors should keep in mind that past performance is no guarantee of future results and that REIT ETFs can see fluctuations in price like other equity-based ETFs.
Note: For consistency in performance comparison among these three REIT ETFs, we use the MSCI US IMI Real Estate 25/50 Index, which is designed to capture the large, mid and small cap segments of the U.S. real estate sector equity universe. This provides a broader REIT index for reference, although each of the funds may seek to track a narrower index.
1. Pacer Benchmark Industrial Real Estate ETF (INDS)
- As of date: February 28, 2022
- 1-year performance: 31.33%
- Expense Ratio: 0.60%, or $60 annually for every $10,000 invested
- SEC Yield: 1.67%
- Three-Month Average Daily Volume: 99.7K
Pacer Benchmark Industrial Real Estate ETF is an exchange-traded fund that seeks to track the Kelly Industrial Real Estate Index and invest in industrial REITs that are part of the ecommerce distribution and logistics networks along with self-storage facilities.
Pacer Benchmark Industrial Real Estate ETF Performance
| 1-Year | 3-Year | 5-Year | 10-Year | |
| Pacer Benchmark Industrial Real Estate ETF | 31.33% | 21.54% | NA | NA |
| MSCI US IMI Real Estate 25/50 Index | 20.23% | 10.80% | 8.85 | NA |
| S&P 500 Index | 16.39% | 18.24% | 15.17% | 14.59% |
The INDS ETF outperforms the broader real estate index, as well as the S&P 500, for the 1-year and 3-year returns, as of February 28, 2022. The fund does not have a performance record for 5 years or beyond.
Here is where a $10,000 investment in INDS, 1 year and 3 years ago, would be as of February 28, 2022:
- 1 year ago: $13,330
- 3 years ago: $17,954
Pacer Benchmark Industrial Real Estate ETF Structure, Objective & Holdings
- Inception Date: 05/14/2018
- Sponsor: Pacer Advisors, Inc
- Ticker: USO
- Primary exchange: NYSE Arca
- Structure: Open ended investment company
- Objective: Track an index of industrial REITs that are part of the ecommerce distribution and logistics networks along with self-storage facilities.
INDS ETF Top 10 Holdings
| Ticker | Holding | Weight |
| PLD | Prologis, Inc. | 15.59% |
| DRE | Duke Realty Corp. | 15.46% |
| REXR | Rexford Industrial Realty, Inc. | 9.25% |
| LSI | Life Storage, Inc. | 4.69% |
| TRNO | Terreno Realty Corp. | 4.57% |
| FR | First Industrial Realty, Inc. | 4.53% |
| IIPR | Innovative Industrial Properties, Inc. | 4.53% |
| STAG | STAG Industrial, Inc. | 4.51% |
| EGP | EastGroup Properties, Inc. | 4.48% |
| PSB | PS Business Parks, Inc. | 4.41% |
INDS ETF Quant Rating Grades
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| A | D+ | D | C+ | A |
2. Nuveen Short-Term REIT ETF (NURE)
- As of date: February 28, 2022
- 1-year performance: 30.44%
- Expense Ratio: 0.35%, or $35 annually for every $10,000 invested
- SEC Yield: 2.24%
- Three-Month Average Daily Volume: 36.2K
Nuveen Short-Term Real Estate ETF seeks to track the Dow Jones U.S. Select Short-Term REIT Index which is composed of U.S. 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.
Nuveen Short-Term Real Estate ETF Performance
| 1-Year | 3-Year | 5-Year | 10-Year | |
| Nuveen Short-Term Real Estate ETF | 30.44% | 13.04% | 11.15% | NA |
| MSCI US IMI Real Estate 25/50 Index | 20.23% | 10.80% | 8.85% | NA |
| S&P 500 Index | 16.39% | 18.24% | 15.17% | 14.59% |
The NURE ETF outperforms the broader real estate index, as well as the S&P 500, for the 1-year return, as of February 28, 2022. However, the fund lags the S&P 500 for the 3-year and 5-year returns. NURE does not have a 10-year performance record, as its inception was in 2016.
Here is where a $10,000 investment in NURE, 1 year, 3 years, and 5 years ago, would be as of February 28, 2022:
- 1 year ago: $13,044
- 3 years ago: $14,444
- 5 years ago: $16,965
Nuveen Short-Term Real Estate ETF Structure, Objective & Holdings
- Inception Date: 12/19/2016
- Sponsor: Nuveen Fund Advisors, LLC
- Ticker: NURE
- Primary exchange: CBOE
- Structure: Open ended investment company
- Objective: Track an index of REITs investing in real estate properties with short-term leases.
NURE ETF Top 10 Holdings
| Ticker | Holding | Weight |
| HST | Host Hotels & Resorts, Inc. | 5.29% |
| PSA | Public Storage | 5.14% |
| EXR | Extra Space Storage | 5.06% |
| EQR | Equity Residential | 5.00% |
| INVH | Invitation Homes Inc. | 4.98% |
| AVB | AvalonBay Communities, Inc. | 4.94% |
| ESS | Essex Property Trust, Inc. | 4.89% |
| UDR | UDR, Inc. | 4.86% |
| MAA | Mid-America Apartment Comm. | 4.83% |
| ELS | Equity Lifestyle Properties | 4.82% |
NURE ETF Quant Rating Grades
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| A- | B+ | D+ | B+ | A |
3. iShares Residential and Multisector Real Estate ETF (REZ)
- As of date: February 28, 2022
- 1-year performance: 29.37%
- Expense Ratio: 0.48%, or $48 annually for every $10,000 invested
- SEC Yield: 1.88%
- Three-Month Average Daily Volume: 169.1K
The iShares Residential and Multisector Real Estate ETF seeks to track the investment results of an index composed of U.S. residential, healthcare and self-storage real estate equities.
iShares Residential and Multisector Real Estate ETF Performance
| 1-Year | 3-Year | 5-Year | 10-Year | |
| iShares Residential and Multisector Real Estate ETF | 29.37% | 12.40% | 10.14% | 11.06% |
| MSCI US IMI Real Estate 25/50 Index | 20.23% | 10.80% | 8.85% | NA |
| S&P 500 Index | 16.39% | 18.24% | 15.17% | 14.59% |
The REZ ETF outperforms the broader real estate index, as well as the S&P 500, for the 1-year returns, as of February 28, 2022. REZ beats the real estate benchmark for 3-year and 5-year returns but lags the S&P 500 in those time frames, as well as the 10-year period.
Here is where a $10,000 investment in REZ, 1 year, 3 years, 5 years, and 10 years ago, would be as of February 28, 2022:
- 1 year ago: $12,937
- 3 years ago: $14,200
- 5 years ago: $16,208
- 10 years ago: $28,548
iShares Residential and Multisector Real Estate ETF Structure, Objective & Holdings
- Inception Date: 05/01/2007
- Sponsor: BlackRock Fund Advisors
- Ticker: REZ
- Primary exchange: NYSE Arca
- Structure: Open ended investment company
- Objective: Seeks to track the investment results of an index composed of U.S. residential, healthcare and self-storage real estate equities.
REZ ETF Top 10 Holdings
| Ticker | Holding | Weight |
| PSA | Public Storage | 10.90% |
| WELL | Welltower Inc. | 7.76% |
| AVB | AvalonBay Communities, Inc. | 6.42% |
| EQR | Equity Residential | 6.15% |
| EXR | Extra Space Storage | 5.00% |
| VTR | Ventas, Inc. | 4.84% |
| MAA | Mid-America Apartment Comm. | 4.48% |
| INVH | Invitation Homes Inc. | 4.46% |
| ESS | Essex Property Trust, Inc. | 4.43% |
| SUI | Sun Communities, Inc. | 4.23% |
REZ ETF Quant Rating Grades
| Momentum | Expenses | Dividends | Risk | Asset Flows |
| D- | A | C+ | D+ | D+ |
Bottom Line
Investors may buy and hold REIT ETFs for income purposes or they may be seeking capital appreciation. Some investors use real estate sector funds as a means of diversifying a portfolio. Investors should keep in mind that REIT stocks carry market risk and therefore can see periods of short-term market fluctuation.
Be the first to comment