Real estate investment trusts (REITs) offer a convenient and low-cost method for investors to invest in real estate. However, investing in individual REITs can mean risking your funds in overly concentrated positions.
To avoid this, consider real estate ETFs, which allow you to invest in a basket of REITs that are handpicked and managed by professional fund managers.
Here’s our pick of the five best performing REIT ETFs with high yields, low cost and proven track records.
The Vanguard Real Estate Index Fund is an all-time favourite real estate ETF, thanks to its broad diversification, low cost and consistent track record.
The fund encompasses around 170 properties — including some of the largest REITs in the market — and is nearly 10 times bigger than the next nearest competitor.
Among its top holdings are leading REITs in infrastructure, data centres and industrial real estate. This is complemented by holdings across diversified, health care, hotel and resort, industrial, office, residential and retail REITs.
All told, VNQ offers a winning combination of dominant REITs and broad diversification. The ETF pays out dividends every quarter; for 2022 it achieved a dividend yield of 3.62per cent.
The Global X SuperDividend REIT ETF lives up to its name. The US$300 million fund sticks to a small but focused collection of 30 global REITs with the highest dividend yields on the market, making it a great pick for yield-chasing investors.
On the back of this simple strategy, SRET has established a track record of paying out dividends every month for seven years running.
Furthermore, the fund is well-diversified across geographical regions, with around 60per cent of holdings in the U.S., 20per cent in Asia and Australia, and REITS from the rest of the world making up the rest.
For 2022, the fund paid out total dividends of US$1.79 per share, for an annual dividend yield of 7.57per cent. The fund’s expense ratio of 0.58per cent is slightly high, but those looking for passive income might not mind paying the cost.
Another real estate ETF favoured for high yields is the Invesco KBW Premium Yield Equity REIT ETF. However, unlike many other real estate ETFs that focus on large-cap REITS, KBWY instead focuses on the lower end of the market capitalization spectrum.
The majority of the fund (80 per cent) is made up of small-cap REITs, with the remaining 20 per cent filled in by mid-cap REITs. All holdings are based in the US.
KBWY allows investors to counterbalance a large-cap-heavy portfolio, while providing monthly income. It achieved an annual dividend return of 6.73 per cent on total dividends of US$1.47 per share.
Another factor in its favour is the modest expense ratio of 0.35 per cent.
One of the most popular real estate ETFs among Singaporeans investors, the Lion-Phillip S-REIT ETF stood out as a top performer in the first eight months of 2022. The fund posted a decline of just 3.53 per cent in the period, compared to a decline of 11.58 per cent seen among global REITs.
CLR is listed on the Singapore stock exchange, and lists 25 holdings at the time of writing. It paid out total dividends of $0.05 per share last year, achieving an annual dividend yield of 5.46 per cent. The fund pays out twice a year, and has around $300 million in assets under management.
Investors looking to increase their exposure to real estate beyond Singapore but still staying within Asia Pacific should consider the NikkoAM-Straits Trading Asia Ex-Japan REIT ETF.
The fund focuses on commercial REITs in several countries, including Singapore, Hong Kong, India, South Korea, Malaysia and China. It is also well diversified, with holdings in retail (38 per cent), industrial (30 per cent), office (13 per cent), diversified or mixed-use (9per cent), hotels and resorts (5 per cent) and specialised commercial properties (3 per cent).
CFA is the largest of the five Singapore-listed real estate ETFs. It paid out a total of $0.037 per share in 2022, for an annual dividend yield of 5.41 per cent. This fund has an expense ratio of 0.58 per cent.
Popular REIT ETFs are widely available at several online brokerages. All you have to do is to sign up with a broker that offers access to the markets that ETFs you want are listed in.
For instance, the Vanguard Real Estate Index Fund is listed on the New York Stock Exchange, so to invest in this fund, you should look for a broker that offers access to the US markets.
Singapore-listed REIT ETFs, such as the Lion-Phillip S-REIT ETF, can be traded via a number of participating dealers, including online brokers and local banks. Some local REIT ETFs funds are also included under the CPF Investment Scheme, which means you can invest in them using your CPF monies.
If you think that REITs would make a good addition to your current portfolio but are unsure where to start, head over ot our guide on the best online brokerages for ETF and Unit Trust Trading in 2023 to find the right investment platform for you.
This article was first published in ValueChampion.