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REIT ETFs Offer an Alternative Investment Option

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ETFs are the best way to meet asset allocation

Asset allocation is a primary factor responsible for investment returns. ETFs are a convenient way for investors to build a portfolio that meets specific asset allocation needs. REIT ETFs offer one of the alternative investment options for investors seeking exposure to commercial real estate. REIT ETFs take exposure mainly into REIT stocks.  Like other ETFs, REIT ETFs are also designed to mirror an underlying REIT index.

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REIT ETFs are growing steadily

As REITs grow in size, their market capitalization rose over the years. This resulted in a rising number of REITs being added to the S&P 500. As more REITs were added to the S&P 500, ETFs increased their exposure in REITs. The rise in opportunities led to the creation of more REIT ETFs in the market. Currently, there are more than 20 REIT ETFs in which investors can take an exposure. The iShares Dow Jones Real Estate Index Fund was launched in 2000. It was the first REIT ETF. We’re covering the following prominent ETFs.

Vanguard REIT ETF

The Vanguard REIT ETF (VNQ) was launched in 2004. Commercial real estate accounted for 52% of the portfolio followed by specialized REITs with 28.60%. The top three holdings are Simon Property Group (SPG), Public Storage (PSA), and Equity Residential (EQR) with respective exposure of 8.40%, 4.25%, and 3.82%. VNQ has $25.2 billion in AUM (assets under management) with an expense ratio of 0.12%.

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iShares U.S. Real Estate ETF

The iShares U.S. Real Estate ETF (IYR) was launched in 2000. Commercial real estate accounted for 41.24% of the portfolio. It was followed by specialized REITs with 36.90%. The top three holdings are Simon Property Group (SPG), American Tower (AMT), and Crown Castel International (CCI) with respective exposure of 6.77%, 4.95%, and 3.41%. IYR has $4.4 billion in AUM with an expense ratio of 0.45%.

SPDR Dow Jones REIT

The SPDR Dow Jones REIT ETF (RWR) was launched in 2001. Commercial real estate accounted for 51.60% of the portfolio. It was followed by specialized REITs with 26.80%. The top three holdings are Simon Property Group (SPG), Public Storage (PSA), and Equity Residential (EQR) with respective exposure of 9.75%, 4.87%, and 4.67%. RWR has $3.05 billion in AUM with an expense ratio of 0.25%.

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iShares Cohen & Steers REIT

The iShares Cohen & Steers REIT ETF (ICF) was launched in 2001. Commercial real estate accounted for 50.46% of the portfolio. It was followed by specialized REITs with 28.60%. The top three holdings are Simon Property Group (SPG), Public Storage (PSA), and Equity Residential (EQR) with respective exposure of 7.99%, 7.01%, and 6.73%. ICF has $3.18 billion in AUM with an expense ratio of 0.35%.

What’s next?

As we discussed earlier, investors typically invest in REITs for a higher dividend yield and long-term growth. Currently, more investors are investing in REITs because it’s an important asset class. In this series, we covered many aspects of REITs that are essential in order to understand the sector. In the next series, we’ll cover several vital indicators and their impact on REIT stocks and ETFs.

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