REIT ETFs: Performance and Expense Review

by: MyPlanIQ

REIT ETFs are a key component in building a portfolio that produces high income. Among the major high dividend ETFs we are tracking, both U.S. REITs (NYSEARCA:IYR) and international REIT (NYSEARCA:RWX) are exceptionally strong, placed at the top one and three spots respectively in the trend score table below. For more detailed performance, refer here.

Assets Class Symbols 01/26
iShares Dow Jones US Real Estate IYR 10.74% 9.1% ^
SPDR S&P 500 SPY 10.47% 9.3% ^
SPDR DJ Wilshire Intl Real Estate RWX 10.32% 10.19% ^
Vanguard High Dividend Yield Indx VYM 9.41% 7.95% ^
Vanguard Dividend Appreciation VIG 9.17% 8.24% ^
PowerShares Intl Dividend Achievers PID 8.91% 7.33% ^
iShares Dow Jones Intl Select Div Idx IDV 8.61% 8.0% ^
iShares MSCI EAFE Index EFA 7.58% 6.71% ^
First Trust Value Line Dividend Index FVD 7.48% 6.62% ^
iShares MSCI Emerging Markets Index EEM 7.24% 7.38% v
iShares Dow Jones Select Dividend Index DVY 7.23% 6.36% ^
SPDR S&P Dividend SDY 6.56% 5.83% ^
PowerShares HighYield Dividend Achievers PEY 6.49% 6.26% ^
iShares S&P U.S. Preferred Stock Index PFF 3.3% 3.09% ^
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The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

Among U.S. REIT ETFs, there are several choices. The following table lists the four most popular (and largest) broadbased REIT ETFs (as of 1/21/2011).

1 Yr AR(%) 3 Yr AR(%) 5 YR AR(%) Expense (%) Last 3 Month Average Volume (Thousands) Annual Yield (%)
IYR 28.2 2.7 -0.1 0.47 8,446 3.53
ICF 33 1.6 0.1 0.35 523 2.9
RWR 31.2 3.5 0.8 0.25 219 2.9
VNQ 29.3 4.3 2.1 0.13 1,732 3.4
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AR: Annualized Return.

From the table above, the Vanguard REIT Index (NYSEARCA:VNQ) is clearly the winner: it has the lowest cost and the best 1, 3 5 year annual returns. iShares Dow Jones US Real Estate (IYR) is most liquid but also the most expensive. Not surprisingly, IYR had the least 5 Year annual return. As iShares ETFs are under attack by Vanguard's low cost ETFs, one would expect that iShares needs to respond by slashing their ETFs' fees.

ICF (iShares Cohen & Steers Realty Major) employs an indexing strategy that is consistent with that used in Cohen & Steers' mutual funds: it emphasizes the 'growth' aspect of underlying REIT companies. Before the financial crisis, such a strategy performed well: it out performed Vanguard VNQ in year 2005 and 2006 by meaningful margins (over 3% annually). But the fund dropped more in year 2007 and 2008. As the economy is entering the recovery phase, it regained its strength and notched the best 1 year return.

The takeaway is that even among many seemingly similar REIT ETFs, one should pay close attention to their expenses and strategies employed. The 'growth' and 'value' effect also exists in these REIT ETFs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.