Real Estate Investment Trusts (REITs) have become a popular way for individuals to invest in real estate without having to buy and manage properties directly. REIT ETFs allow investors to gain broad exposure to the entire REIT market, without needing to analyze individual companies.. In this article, we’ll take a look at REIT ETFs traded in the U.S. market, what characterizes them, the differences between them, and some key things to know before investing.

What Are ETFs?

An Exchange-Traded Fund (ETF) is a type of investment fund that holds a collection of securities—such as stocks—and trades on a stock exchange, just like a stock itself. ETFs are usually passively managed and aim to replicate a stock index, like the S&P500. They offer an efficient way for investors to get broad exposure to a sector, an asset class, or even a specific strategy, often with lower costs and easy tradeability.

What Are REIT ETFs?

REIT ETFs are specialized ETFs that invest in real estate companies and REITs. REITs are companies that own, operate, or finance income-generating real estate, such as office buildings, shopping centers, apartments, and warehouses. REIT ETFs give investors a way to diversify into real estate by buying shares of one ETF that holds a variety of REIT stocks. This makes investing in real estate more straightforward, without the challenges of managing physical properties or picking specific stocks.

In the U.S. market, there are around 35 REIT ETFs with over $50 million in assets under management each. These ETFs invest in both local and global real estate firms. The largest and most well-known REIT ETF is  Vanguard Real Estate ETF (VNQ), which holds about $37 billion in assets under management, much higher than the next ETFs like Schwab U.S. REIT ETF (SCHH) with $8.1 billion in assets under management or The Real Estate Select Sector SPDR® Fund (XLRE) with $7.8 billion in assets under management. 

Size of the REIT ETF Market

The REIT ETF market in the U.S. is diverse. Out of the 35 ETFs with over $50 million in AUM:

• Around 15 ETFs have over $500 million in AUM.
• 7 ETFs manage between $200 million and $500 million.
• Another 7 have AUM between $100 million and $200 million.
• The rest fall within the $50 million to $100 million range. We are not looking at ETFs with a assets under management of under $50 million due to the causes described in the ETF size considerations article.

These ETFs vary in size, strategy, and market focus, giving investors many choices depending on their specific goals. 

REIT ETFs Expense Ratios

ETFs charge the owners fees, in order to cover management fees and other expenses, and yield some profit to the organizer. This is an important cost to consider when investing in ETFs. Since the ETF usually aims to replicate an index, the expense ratio lowers the investor’s yeidl compares to the yield of the index. Usually, expense rates of ETFs are very low. The expense rates for large REIT ETFs are generally very low—ranging from 0.07% to 0.5%. Notably, 9 REIT ETFs have an expense ratio of less than 0.15%, and 4 of them are as low as 0.1% or even lower. Low expenses are a big attraction for ETFs, as they allow investors to keep more of their returns.

REIT ETFs Descriptions

U.S. REIT ETFs

Of the 15 largest REIT ETFs, 10 hold only U.S. REIT stocks, focusing entirely on domestic properties. They replicate local REIT indices and half of them have been operating for more than 15 years. We describe them more thoroughly in the article “Best US REIT ETFs for Diversified Real Estate Exposure“.

Global REIT ETFs

Of the 15 largest REIT ETFs, 3 are globally diversified but are weighted towards the U.S., with approximately 70% of their holdings in American firms. Of them, Vert Global Sustainable Real Estate ETF is focused on sustainability, but its diversification across different real estate sectors is not that different than the other two ETFs. We describe them more thoroughly in the article about Global REIT ETFs.

Global ex-U.S. REIT ETFs

Of the 15 largest REIT ETFs, 2 focus on global markets excluding the U.S., offering exposure to real estate companies across other countries. We describe them more thoroughly in the article about Global ex-U.S. REIT ETFs.

The diversification across sectors within these ETFs is fairly similar, whether the focus is U.S.-only or global. This is partly because approximately 70% of the holdings of many global REIT ETFs are still invested in U.S. real estate, reflecting the strong presence of the U.S. in the global real estate market. Following is the average sector diversification of US and Global REIT ETFs:

Historical Performance of REIT ETFs

Most of the large REIT ETFs have been in operation for more than ten years. As of the end of 2024, rising interest rates over the past three years have negatively affected commercial property values, increased interest expenses, and led to negative REIT returns. Consequently, the average yield for large REIT ETFs was approximately 0% for the past three years. Global ex-U.S. ETFs experienced negative returns, with an average annual return of -6.6%. However, the five-year performance for U.S. REIT ETFs was somewhat better, averaging 3.8% annually, while the ten-year average was 5.8%. The U.S. REIT market saw negative returns in 2020 (due to COVID) and in 2022 (due to rising interest rates), which significantly impacted recent returns. The average annual yields of some of the older funds are in the range of 7% to 9%, depending on the inception year.

Specialized Sector REIT ETFs

While most REIT ETFs are diversified across different property sectors, a few focus on specific real estate segments. For example:

• iShares Residential and Multisector Real Estate ETF: Focuses on residential, healthcare, and self-storage REITs.
• Pacer Industrial Real Estate ETF: Invests globally in industrial and warehouse REITs.
• Nuveen Short-Term REIT ETF: Invests in properties with shorter lease durations, such as residential, hotels, and self-storage.
• NETLease Corporate Real Estate ETF: Specializes in U.S. net lease properties.

These specialized ETFs allow investors to target particular sectors, depending on their market outlook or strategy. We describe them more thoroughly in the article about Specialized Sectors REIT ETFs.

Strategic and Leveraged REIT ETFs

In addition to the sector-specific options, there are also REIT ETFs that use different investment strategies:

• Some focus on sustainability or high dividend yields.
• Others use active management or equal weight strategies.

These ETFs tend to be smaller in size, with AUM typically at the lower end of the scale. We describe them more thoroughly in the article about Special Strategy REIT ETFs.

Additionally, there are leveraged ETFs for investors looking to take a more aggressive approach:

• Direxion Daily Real Estate Bull 3X Shares: Provides three times the daily returns of a diversified REIT index.
• ProShares Ultra Real Estate: Offers two times the daily returns of a REIT index.
• Direxion Daily Real Estate Bear 3X Shares: Takes a short position, aiming for three times the inverse of the daily performance of a diversified REIT index.
• We describe them more thoroughly in the article about Leveraged REIT ETFs.

Summary

• REIT ETFs provide investors with easy diversification into real estate without the need to manage properties.
• ETFs are passively managed funds that replicate a stock index, offering efficient and low-cost exposure.
• There are approximately 35 REIT ETFs with over $50 million in assets under management in the U.S. market.
• The expense ratios for large REIT ETFs are generally very low, ranging from 0.07% to 0.5%, allowing investors to keep more of their returns.
• There are U.S. REIT ETFs which focus entirely on domestic properties, global REIT ETFs which have a mix of U.S. and international holdings and global ex-U.S. REIT ETFs which offer exposure to international real estate companies. We analyze each group thoroughly in dedicated articles.
• Historical performance shows that the recent rising interest rates environment have impacted REIT returns, with an average yield of 5.8% in the past ten years for large U.S. REIT ETFs and lower for international ETFs. The yields over longer periods were higher.
• There are also specialized sector REIT ETFs, REIT ETFs that employ unique strategies of leveraged ETFs. We analyze each group thoroughly in dedicated articles.

Disclaimer: The information provided in this post is for informational purposes only and reflects my personal opinions. It should not be considered as professional financial, legal, or investment advice. Please consult with a professional before making any investment decisions. I am not responsible for any actions taken based on this information. The full disclaimer can be found here.