DIV 203Lesson 5 of 90 of 9
REIT ETFs
Owning a slice of hundreds of landlords in one ticker.
What you’ll learn
- How REIT ETFs work and what the biggest ones hold
- Why a REIT fund often yields less than the REITs you hear about
- How the index choice changes what you own
- When a fund makes more sense than picking individual REITs
Picking individual REITs means choosing between property types, judging occupancy and leases, and reading AFFO reports. A REIT ETF skips all of that and gives you a slice of a hundred or more landlords at once. For most people who want some real estate income, that’s the simplest place to start.
The big REIT funds
| Fund | What it holds | Worth knowing |
|---|---|---|
| VNQ | Over 150 US real estate companies, mostly REITs | The largest; includes a few real estate services firms |
| SCHH | US equity REITs | Very low cost; excludes mortgage REITs |
| XLRE | Real estate companies in the S&P 500 | Concentrated in the biggest names |
| USRT | US equity REITs across sizes | Broad and low cost |
| IYR | US real estate companies | Older fund, higher fee than the others |
| VNQI | Property companies outside the US | Adds currency and foreign tax effects |
Live figures
| Ticker | Name | Yield | Pays | 1Y total return | 5Y total return |
|---|---|---|---|---|---|
| VNQ | Vanguard Real Estate Index Fund ETF Shares | 3.61% | Quarterly | +1.2% | +5.6% |
| SCHH | Schwab U.S. REIT ETF | 3.17% | Quarterly | +4.5% | +10.2% |
| XLRE | State Street Real Estate Select Sector SPDR ETF | 3.49% | Quarterly | +0.0% | +8.0% |
| USRT | iShares Core U.S. REIT ETF | 3.09% | Quarterly | +7.1% | +20.4% |
| IYR | iShares U.S. Real Estate ETF | 3.13% | Quarterly | -0.4% | +4.6% |
| VNQI | Vanguard Global ex-U.S. Real Estate Index Fund ETF Shares | 5.14% | Annual | -8.3% | -9.1% |
| O | Realty Income Corporation | 6.07% | Monthly | -6.1% | +8.6% |
| VICI | VICI Properties Inc. | 8.17% | Quarterly | -26.1% | +3.1% |
Why the fund yields less than the REITs you hear about
You might see individual REITs yielding 6% to 8% and wonder why a REIT fund yields 3% to 4%. Most REIT funds weight holdings by size, and the biggest REITs today are growth landlords: warehouses, cell towers, data centers and senior housing. They yield less because investors expect more growth. The high yielders are usually smaller, so they make up a smaller share of the fund.
That isn’t a flaw; it’s the market’s balance between income and growth. If you want more income from real estate, you can tilt towards net lease and shopping center REITs individually, accepting more concentration in return.
Fund or individual REITs?
| Choose a REIT ETF if | Choose individual REITs if |
|---|---|
| You want real estate as one part of a broader portfolio | You want a higher yield than the index gives |
| You don't want to analyze leases and AFFO | You're comfortable reading REIT reports |
| You want every property type covered | You want to avoid particular types, like offices |
| You value simplicity | You'll hold enough names (at least five or six) to spread the risk |
That wraps up REITs. Next, the other big family of companies required to pay out most of their income: business lenders, in BDCs: Lending to Small Businesses for Income.
Check your understanding
4 questionsWhy do broad REIT ETFs often yield less than popular high yield REITs?
What's a main advantage of a REIT ETF over owning two or three REITs?
XLRE holds only real estate companies in the S&P 500. What does that mean compared with a broader REIT fund?
How are distributions from a REIT ETF mostly taxed in a taxable account?
Related lessons
Put it into practice
This lesson is for education only and isn’t financial, investment or tax advice. Tickers are used as examples of how things work, not as recommendations. Figures marked as live come from Dividend Duel’s market data and change daily. See our disclosure.