REIT ETFs To Consider For Broad Exposure

| About: Vanguard Global (VNQI)
This article is now exclusive for PRO subscribers.

Summary

I searched through REIT ETFs for the one that would be most appealing to the average investor.

I focused on ETFs with low volatility, good performance and low expenses.

Because of a higher yield, a Global ex-U.S. Real Estate ETF slightly beat out a U.S. focused Real Estate ETF.

In this article, I will be reviewing ETFs that cover the real estate sector. After reading a recent article by a fellow author titled "Picking The Right REIT ETF For The Average Joe Or Jane", I decided to search through the real estate ETF universe to find the most appealing one using a wider number of criteria. The base idea that I am building my screen off of is for an average investor. They do not want an ETF with a large amount of volatility, but one that has performed well in the current environment and has a reasonable expense ratio.

Screen Criteria

For my screen, I used data from the Fidelity ETF Screener and the ETF.com screener. The base criteria I used to get my initial list of eligible ETFs can be found in the following list. These simple criteria returned a list of 18 candidates to choose from as the most appealing real estate ETF and are listed in the table below.

  • Exclude Mortgage REIT ETFs

  • Greater than $100 million in assets

  • Not Leveraged/Inverse

ETP Name

Symbol

FIDELITY MSCI REAL ESTATE INDEX ETF

(NYSEARCA:FREL)

FIRST TRUST S&P REIT INDEX FUND

(NYSEARCA:FRI)

FLEXSHARES GLOBAL QUALITY REAL ESTATE INDEX FUND

(NYSEARCA:GQRE)

ISHARES COHEN & STEERS REIT ETF

(BATS:ICF)

ISHARES INTERNATIONAL DEVELOPED REAL ESTATE ETF

(NASDAQ:IFGL)

ISHARES U.S. REAL ESTATE ETF

(NYSEARCA:IYR)

POWERSHARES KBW PREMIUM YIELD EQUITY REIT PORTFOLIO

(NASDAQ:KBWY)

ISHARES GLOBAL REIT ETF

(NYSEARCA:REET)

ISHARES RESIDENTIAL REAL ESTATE CAPPED ETF

(NYSEARCA:REZ)

IQ US REAL ESTATE SMALL CAP ETF

(NYSEARCA:ROOF)

SPDR DJ WILSHIRE GLOBAL REAL ESTATE ETF

(NYSEARCA:RWO)

SPDR DOW JONES REIT ETF

(NYSEARCA:RWR)

SPDR DJ WILSHIRE INTERNATIONAL REAL ESTATE ETF

(NYSEARCA:RWX)

SCHWAB US REIT ETF

(NYSEARCA:SCHH)

VANGUARD REIT ETF

(NYSEARCA:VNQ)

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

(NASDAQ:VNQI)

ISHARES INTERNATIONAL PROPERTY ETF

(NYSEARCA:WPS)

REAL ESTATE SELECT SECTOR SPDR FUND

(NYSEARCA:XLRE)

Volatility Screen

To narrow down my list of 18 real estate ETFs, I used the Fidelity stock screener to find data on the 1 year standard deviation of each of the 18 funds. As I noted above, the average investor does not want an ETF that is extremely volatile, therefore I only included the top two thirds (12 ETFs) with the lowest 1 year standard deviation. One interesting item I noticed about this list is the top five funds on this list are either classified as global or international. With the bottom four spots being occupied by U.S. real estate ETFs, it is easy to see the impact of multiple interest rate increases on the volatility of REITs over the last year.

ETP Name

Symbol

1 yr Std. Dev

FLEXSHARES GLOBAL QUALITY REAL ESTATE INDEX FUND

GQRE

12.54

ISHARES GLOBAL REIT ETF

REET

13.52

ISHARES INTERNATIONAL PROPERTY ETF

WPS

13.58

SPDR DJ WILSHIRE GLOBAL REAL ESTATE ETF

RWO

13.68

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

VNQI

14.03

ISHARES U.S. REAL ESTATE ETF

IYR

14.18

FIDELITY MSCI REAL ESTATE INDEX ETF

FREL

14.3

ISHARES INTERNATIONAL DEVELOPED REAL ESTATE ETF

IFGL

14.77

REAL ESTATE SELECT SECTOR SPDR FUND

XLRE

14.79

SCHWAB US REIT ETF

SCHH

15.06

VANGUARD REIT ETF

VNQ

15.06

SPDR DOW JONES REIT ETF

RWR

15.16

Performance Screen #1

To narrow down my list further I once again used the Fidelity ETF screener to see how each of the above 12 stocks has performed YTD. Of the above 12 stocks I only included the top two thirds [8 ETFs] that has the best YTD total return. Just as with my standard deviation screen, global and international real estate ETFs topped the list.

ETP Name

Symbol

Total Return (YTD)

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

VNQI

7.54%

ISHARES INTERNATIONAL PROPERTY ETF

WPS

5.77%

ISHARES INTERNATIONAL DEVELOPED REAL ESTATE ETF

IFGL

4.98%

REAL ESTATE SELECT SECTOR SPDR FUND

XLRE

1.78%

FLEXSHARES GLOBAL QUALITY REAL ESTATE INDEX FUND

GQRE

1.70%

ISHARES U.S. REAL ESTATE ETF

IYR

1.64%

FIDELITY MSCI REAL ESTATE INDEX ETF

FREL

1.20%

ISHARES GLOBAL REIT ETF

REET

0.59%

Performance Screen #2

I conducted a second performance test to further narrow my list down. For this test I looked at how each of the above 8 ETFs has performed over the last year. Of the above 8 stocks I only included the top two thirds [5 ETFs] that has the best 1 year total return.

ETP Name

Symbol

Total Return (1 Yr)

FIDELITY MSCI REAL ESTATE INDEX ETF

FREL

5.97%

ISHARES U.S. REAL ESTATE ETF

IYR

5.26%

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

VNQI

5.12%

ISHARES INTERNATIONAL PROPERTY ETF

WPS

2.49%

REAL ESTATE SELECT SECTOR SPDR FUND

XLRE

1.91%

Expense ratio test

For my final test, I looked at the expense ratios for the remaining five funds. I found that IYR and WPS had high expense ratios in comparison to the other three ETFs remaining on my list; therefore I excluded them from further consideration.

ETP Name

Symbol

Exp. Ratio

FIDELITY MSCI REAL ESTATE INDEX ETF

FREL

0.08%

REAL ESTATE SELECT SECTOR SPDR FUND

XLRE

0.14%

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

VNQI

0.15%

ISHARES U.S. REAL ESTATE ETF

IYR

0.44%

ISHARES INTERNATIONAL PROPERTY ETF

WPS

0.48%

My Selection

To decide, which of the three remaining ETFs to select as my choice, I compiled a composite score based on the data for all my tests. For each of the three ETFs I ranked them 1-3 based on the data for the category I covered, with 3 being the best in the category and 1 being the worst. After adding up the scores there was a tie between FREL and VNQI. To break this tie, I decided to select the ETF that had the highest yield of the two, which means the winner is the Vanguard Global ex-U.S. Real Estate ETF because it has a yield of 4.82% compared to FREL, which has a yield of 2.71%.

ETP Name

Symbol

Std. Dev 1 Yr

YTD Total Return

Total Return (1YR)

Exp. Ratio

Total Score

FIDELITY MSCI REAL ESTATE INDEX ETF

FREL

2

1

3

3

9

VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND ETF

VNQI

3

3

2

1

9

REAL ESTATE SELECT SECTOR SPDR FUND

XLRE

1

2

1

2

6

Vanguard Global ex-U.S. Real Estate ETF Overview

VNQI tracks the S&P Global ex-U.S. Property Index. As you can see from the table below, VNQI is not top heavy, since only 20.1% of its holdings are from the top ten holdings. The pie chart below shows a region breakdown of the underlying holdings of VNQI. With VNQI having a greater than 50% exposure to the Asia/Pacific region, potential investors would have to be comfortable with this geographic concentration risk.

Rank

Holdings

1

Mitsubishi Estate Co. Ltd.

2

Sun Hung Kai Properties Ltd.

3

Unibail-Rodamco SE

4

Mitsui Fudosan Co. Ltd.

5

Cheung Kong Property Holdings Ltd.

6

Daiwa House Industry Co. Ltd.

7

Scentre Group

8

Vonovia SE

9

Link REIT

10

China Overseas Land & Investment Ltd.

Month-end ten largest holdings as of 02/28/2017

Ten largest holdings = 20.1% of total net assets

Table from VNQI Portfolio Overview

Image from VNQI portfolio overview.

Closing Thoughts

In closing, I believe VNQI is worthy of further research and worth considering for the average investor who is looking for a broad real estate ETF, which targets the international real estate market. For those investors looking for U.S. real estate exposure, my second place finisher FREL looks like a quality option worthy of further research and consideration as well, since it met all the same criteria as VNQI, however it had a lower yield.

Disclaimer: See here.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.