Each of the top 3 ETF sponsors has a REIT fund and State Street also has an international REIT ETF. We take a look at each of them here.
Vanguard’s $2.3 billion REIT ETF (Amex: VNQ) tracks the Morgan Stanley Capital International (MSCI) US REIT Index. The index consists of 96 REITs spread across the retail, residential, office, industrial and specialized sectors. Top holdings include Simon Property Group, Inc. (NYSE: SPG), ProLogis (NYSE: PLD), Vornado Realty Trust (NYSE: VNO), Boston Properties (NYSE: BXP), and Public Storage (NYSE: PSA).
A twist on the Vanguard offering is that the ETF shares participate in the same $10 billion fund that Vanguard’s mutual fund investors own. The expense ratio for ETF shares is 0.12%. See Vanguard’s website for more information.
iShares‘ $1.9 billion Dow Jones U.S. Real Estate Index Fund (NYSEArca: IYR) tracks, surprise!, the Dow Jones U.S. Real Estate Index which holds 77 REITs and is similar in composition to the Morgan Stanley Index. Top holdings include Simon Property Group, ProLogis, Vornado Realty Trust, Boston Properties and Equity Residential (NYSE: EQR). The expense ratio is 0.48%. For more information, see the iShares website.
State Street‘s $1.3 billion DJ Wilshire REIT ETF (Amex: RWR) tracks 87 REITs and is similar in composition to the iShare’s fund with the same top holdings. The expense ratio is 0.25%. For more information, see the State Street website.
On the international side, State Street’s $970 million SPDR DJ Wilshire International Real Estate ETF (Amex: RWX) tracks 156 publicly traded real estate securities in countries excluding the U.S. Sectors covered include real estate operating companies, regional malls, office building owners and diversified real estate companies.
Top countries represented are Japan, Australia, U.K., Hong Kong and France. Top holdings include shopping mall titan Westfield Group (ADX: WDC), diversified Japanese developer Mitsui Fudosan (TSE: 8810) and Europe’s leading commercial developer Unibail-Rodamco (Paris: UL.PA). For more information, see State Street’s website.
In addition to the REIT ETFs mentioned here, several specialized REIT ETFs are available to investors and we will cover those in a later post.
One watch-out, REIT ETFs don’t necessarily have the same tax efficiency benefit as other ETFs. The reason is that the underlying REITs pay out capital gains distributions which then must flow through to the ETF investor. For that reason, check into when the capital gains get distributed and check with your tax advisor before investing.
In sum, the domestic REIT ETFs are remarkably similar in composition and performance, so the expense ratio should be the deciding factor and Vanguard is the leader for now. The credit crunch and real estate crash in the UK and other countries is a few weeks if not months behind the U.S., so we would expect the recovery in RWX to be behind the domestic REIT ETFs – see the chart below for how prices are currently trending.
Also, see our prior post on Shorting Commercial Real Estate with REIT ETFs.