February 24, 2024

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The 7 Best REIT ETFs to Buy for 2024 | Investing

The benefits of owning income-producing real estate are well known. Real estate can provide tax advantages, current income and a great potential for capital appreciation over time. Unfortunately, direct ownership of commercial real estate is out of reach for most people. Too often, the costs associated with buying and maintaining buildings, along with the time commitment necessary to manage rental property, make investing in real estate impossible for the individual investor.

That’s where REITs come in. A REIT is a unique company that invests its assets in commercial real estate. REITs can be large or relatively small; they can be privately held or they can be public companies that trade on the stock exchange. By pooling money from many investors, a REIT can own, operate and collect rent on dozens or even hundreds of buildings. To avoid corporate taxation, REITs must, by law, distribute at least 90% of their pretax income to owners. Public REITs accomplish this by paying quarterly dividends to shareholders. REITs are an easy way for retail investors to enjoy many of the benefits of owning real estate without all the hassle of being a landlord.

REIT ETFs offer even more benefits. Managers of REIT ETFs put together a portfolio of REITs, collect the income, and distribute it to shareholders in the form of a cash dividend. Shares of REIT ETFs can be conveniently bought and sold on major exchanges, just like stocks or mutual funds.

Here are seven of the best REIT ETFs to buy right now:

ETF Expense ratio Dividend yield
Vanguard Real Estate ETF (ticker: VNQ) 0.12% 4%
JPMorgan BetaBuilders MSCI U. S. REIT ETF (BBRE) 0.11% 3.7%
Fundamental Income Net Lease Real Estate ETF (NETL) 0.60% 4.6%
Invesco Active U. S. Real Estate Fund (PSR) 0.35% 2.9%
VanEck Mortgage REIT Income ETF (MORT) 0.43% 12.2%
Nuveen Short-Term REIT ETF (NURE) 0.35% 3.7%
Global X SuperDividend REIT ETF (SRET) 0.59% 7.2%

Vanguard Real Estate ETF (VNQ)

VNQ is an index ETF. It’s managed to mirror the MSCI US Investable Market Real Estate 25/50 index, which contains more than 160 individual, U.S.-based REITs. VNQ has a reasonable expense ratio of 0.12% which allows the fund to track the performance of the index very closely.

More than 22% of VNQ’s assets are invested in REITs that own and operate data centers and cell phone towers. The ongoing expansion of the internet, the continuing rollout of 5G communications and the emerging technology of artificial intelligence make VNQ a very timely investment. The fund’s other major holdings are in self-storage facilities, the health care sector, industrial property and brick-and-mortar retail.

The ETF has total assets of more than $33 billion and an average trading volume of 5.5 million shares a day, which gives investors all the liquidity they could ask for. VNQ is managed by Vanguard Equity Index Group, a company that’s been a pioneer in index investing.

JPMorgan BetaBuilders MSCI U. S. REIT ETF (BBRE)

As mentioned above, REITs come in all different sizes. Like other publicly traded companies, public REITS can be large-cap, mid-cap or small-cap stocks. BBRE is a REIT ETF that is focused on small- and mid-cap REITS.

BBRE tracks a specialized index called the MSCI REIT Custom Capped Index. Both the index and the ETF hold 121 individual issues. Like all index funds, the ETF is passively managed and should replicate the performance of the index minus the small 0.11% expense ratio.

More than 19% of the REITs in BBRE are diversified equity REITs, meaning they hold several different classes of commercial real estate. Other prominent industries represented in BBRE are multifamily at 17% of assets, industrial at 16%, health care at 10% and self-storage also at 10%. Small- and mid-cap REITs can be more volatile than their large-cap counterparts but they can also have more potential for growth.

Fundamental Income Net Lease Real Estate ETF (NETL)

Net-lease investing is a very interesting and potentially very profitable form of real estate investing. Net-lease investors own real estate but don’t manage it. Instead, they lease it to creditworthy corporations on a net basis, meaning the tenant – not the landlord – pays the taxes, buys the insurance and maintains the building. All the owners do is collect the rent and pay any mortgages or other debt they might have.

NETL specializes in owning net lease REITs, rather than traditional owner-operators. Because of this specialization, NETL is technically considered a non-diversified ETF, but in reality it invests in several different industries and has exposure to many property types. Among NETL’s top holdings are Realty Income Corp. (O), Stag Industrial Inc. (STAG), NNN REIT Inc. (NNN) and Global Net Lease Inc. (GNL).

The main objective of NETL is current income, which is why this ETF pays a monthly instead of a quarterly dividend. The fund has an expense ratio of 0.60%.

Invesco Active U. S. Real Estate Fund (PSR)

PSR is not exactly an index ETF, but it does select the REITs it buys from a large and well-known index. In practical terms, what this means is that all the REITS held in PSR are components of the FTSE NAREIT All Equity REIT Index.

The portfolio managers at Invesco look at all the companies in the index and use quantitative and statistical methods to select the ones that they feel have the best risk-adjusted potential for superior income and growth.

PSR has a total return investment perspective that puts equal emphasis on dividends and capital appreciation. The fund is actively managed. All holdings are evaluated and, if necessary, changes are made to the portfolio on a monthly basis.

The 0.35% expense ratio is higher some other ETFs on this list but can be accounted for by the hands-on, highly technical management of PSR.

VanEck Mortgage REIT Income ETF (MORT)

REITs can be classified into three types: equity, mortgage and hybrid REITs. An equity REIT owns and operates commercial real estate directly, a mortgage REIT, or mREIT, invests in financial instruments related to real estate such as loans, mortgages and mortgage bonds. A hybrid REIT will invest in a diversified mix of direct ownership and financial instruments.

MORT is an mREIT ETF with a straightforward investment rationale: exceptionally high dividend yield potential. Capital appreciation, while actively sought, is a secondary objective.

MORT provides investors with broad exposure to the real estate mortgage finance sector by closely tracking the MVIS US Mortgage REIT Index. That index is designed to reflect the overall income and growth performance of the mREIT universe.

The REITs in MORT hold residential mortgages in the form of RMBS, or residential mortgage-backed securities, as well as commercial mortgages through CMBS, or commercial mortgage-backed securities. Some of the REITs it owns, such as Starwood Property Trust Inc. (STWD), even originate mortgages and make loans themselves.

This ETF does a good job of replicating the performance of its benchmark index. With an expense ratio of 0.43%, the fund is not inexpensive, but the fees it charges are offset by the high and dependable income yield.

Nuveen Short-Term REIT ETF (NURE)

NURE takes a unique approach to REIT investing. This small ETF attempts to minimize the volatility associated with real estate investing by owning REITs that have relatively short-term lease agreements in place.

The ETF concentrates its holdings in multifamily, hotels, self-storage and mobile home parks because those sectors generally have shorter lease terms than other classes of real estate. Nuveen believes property values on buildings with short leases are much less volatile than properties with long-term leases.

NURE has a 12-month total return of 13% based on distributions and market price and has returned an average of 6.4% since its inception in December of 2016.

NURE is based on the Dow Jones U. S. Select Short-Term REIT index and has an expense ratio of 0.35%

Global X SuperDividend REIT ETF (SRET)

SRET is managed by Global X which is owned by Mirae Asset Global Investments, a Korean firm with more than $200 billion in assets under management worldwide. SRET has a place on this list for three important reasons. The first is its high yield; secondly, it pays its dividends monthly rather than quarterly; finally, it provides investors with global, not just domestic real estate exposure.

SRET is a relatively small ETF with just under $250 million in assets. The REIT selection process is simple: The portfolio managers invest in the 30 highest-yielding global REITs that make up the Solactive Global SuperDividend REIT index.

The high monthly dividend helps the ETF perform well in volatile markets. Over the past 12 months, which featured high interest rates and high inflation, the fund had a total return of 9.85% based on distributions and market price. The expense ratio is 0.59%, which is in-line with other global ETFs.