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VNQ: Not Very Appealing At The Moment

Alex Galanis profile picture
Alex Galanis


  • With Assets Under Management of $45.57B, VNQ is the largest Real Estate ETF on the market.
  • The 3.02% yield the fund currently offers does not impress.
  • In terms of diversification, there might be fewer benefits to adding VNQ to a portfolio than someone would think.

REIT. Real estate investment trust. Financial Market. Hand pressing button on screen

Funtap/iStock via Getty Images


With more and more investors searching for high yield opportunities to protect their assets from rising inflation, ETFs that offer exposure to Real Estate REITs like Vanguard's Real Estate ETF (NYSEARCA:VNQ) are often proposed

This article was written by

Alex Galanis profile picture
Financial Analyst, interested in U.S equities, examining Growth, Dividend Growth and Value Investment opportunities, as well as ETFs.  Accounting and Finance Graduate. CFA level ΙI candidate.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (35)

I have owned it for 2 years. Mediocre dividend . Commercial RE in a down market- no thank you.Will sell and invest in Canadian oil like CNQ or Enbridge.Better dividend and share appreciation.
One expects that, in the long term, VNQ will increase its dividends with at least the rate of inflation. This is an important advantage that makes VNQ appealing even after its share price went up in 2021.

The COVID crisis had an adverse effect on dividends paid by REITs. I expect that this is a transient phenomenon. I will not be surprised if the dividend grows by 10-20 percent the first year after the pandemic is over.

Bottom line: VNQ may have a place in the portfolios of patient income-oriented investors.
@Peter_PaloAlto I would hope it would increase it's dividends with inflation but I looked at a long term dividend chart for VNQ and it paid more in dividends from 2005-07 than it did from 2019-2021. I have held this for diversification but the truth is REIT indexes have been very poor performers for the last 15 years. I would not care about poor performance if the dividend was increasing but it does not give me confidence when I see the dividend showing no growth for over a decade. It rises and falls but doesn't really grow from what I have observed in the past 15 years.
My sense is that for many investors looking to hedge/rebalance... we should be observing the Portfolio 3 performance through 2011/2012, where following a downturn, the REIT mix performed better than the SPY alone.
Meanwhile, VNQ continues to outperform the market. I m considering buying more.
Diesel profile picture
I like VNQ better when the yield is at least in the 4-5% range.
I totally agree with the author. I have my own little etf with AGNC, DLR, FRT, MPW, O and STAG whit an average return in 2021 of 15% and a yield far above VNQ. No reason to make a transfer to VNQ, maybe just adding a couple of other good performing REITS the coming period.
Chachi9337 profile picture
VNQ's exposure to the tower companies like AMT has always concerned me. AMT and similar have technology risk - they are closer to tech than RE...the whole point of RE is that it's unique, always needed, and stable. Technology can become antiquated very quickly. Shouldn't be in a vanguard RE portfolio.
Lake OZ boater profile picture
The author mentioned "Markowitz's Modern Portfolio Theory ". A Portfolio Optimizer tool can help an investor find the best asset allocation according to their personalized portfolio objective.

Since SPY already has an allocation to the REITs sector, do you need an additional allocation to VNQ ? Well, that might depend on your strategy...

1. Maximize mean return - find the allocation with the highest portfolio return

100% SPY

2. Minimize variance - optimize the portfolio to have minimum risk

100% VNQ

3. Maximize quadratic utility - this optimization maximizes return while penalizing risk

100% SPY

4. Minimize expected tail loss - minimize the occurrence of significant (more than three standard deviations from the mean) losses

85% SPY
15% VNQ

5. Maximize Sharpe ratio - find the portfolio with the highest Sharpe ratio

100% SPY

Suspirium Puellarum profile picture
VNQ at 3% yield is not good, esp. after taxes as REIT income (not really a dividend) is taxed higher than qualified dividends. Seems to me that VYMI (int'l hi dividend yield) is better today at a 3% yield, most or all qual'd dividends, and favorable/better overall pricing. Higher risk? Hard to say. Market timing. VNQ has done well recently, VYMI has not. . .
TopperBrad profile picture
@Suspirium Puellarum You can invest in REITS in an IRA and/or 401k.
Lake OZ boater profile picture
Vanguard states at their website the adjusted effective yield is 1.72% as of 10/31/2021. The higher yield referred to in the article may include "return of capital."


REITs should produce more income than the 10- year treasury note, given the greater risk of default, and the expansion and growth limitations of real property versus other kinds of businesses.


Rule of thumb: REIT yield should be +1% or more than the 10 year note to provide a margin of safety.

VNQ 1.72% minus 10 yr note 1.35% = +0.37%

New purchases of VNQ at this price are not likely to appreciate as much versus when the spread is + 1% or higher.
Slade_01 profile picture
@LakeOZ boater There are so many good individual REITs that it makes more sense to invest in a basket of those and get much greater dividends and long term performance.
Lake OZ boater profile picture
@911Slade There are many " stock pickers" like yourself, who have the time and expertise. But for Average Joes like me, getting outperformance from concentrating a portfolio with a limited number of "great individual REITs" does not seem supported by the evidence.

See: "Do Stocks Outperform Treasury Bills?"

Besssembinder looked at the period from 1926-2015 and found that just 42% of common stocks had a holding period return greater than one-month Treasury bills.


See also: "Do stocks outperform treasury bills in international markets?"

The authors sampled 70,000 stocks in 57 countries over the period 1996 through 2017 and found more than 1/2 the common stocks in the majority of international equity markets generated total returns that were less than local Treasury bill returns.


The ability to identify good stocks (REIT stocks included) is extremely difficult. Investment strategies that migrate to a concentrated portfolios of stocks require skill and ability.

IMHO: Most of us are better off in broadly diversified ETFs like VNQ.
Old Professor profile picture
@LakeOZ boater Well said. Thank you.
GA Race Walker profile picture
I like FIREX Fidelity® International Real Estate Fund better. It has bee discounted relative to VNQ recently with the virus outbreaks in Europe. Things will get better and FIREX will catch up again. It has five star rating from Morningstar and it is rated as having less risk. The returns on average are higher. It is a mutual fund. The current price is very good.

YTD (Daily)* +8.02% Average Annual Returns 1 Yr +12.66%, 3 Yrs +12.63%
5 Yrs +11.61%, 10 Yrs +10.90%
Alex Galanis profile picture
@Retirement Media Will look into it. Thanks!
No Guilt profile picture
@Retirement Media

Good luck with Japanese Real Estate, Australian Real Estate, Canadian real estate.

U.S. prices are high but good luck
GA Race Walker profile picture
@No Guilt
Regional Diversification 8 Regional Diversification Additional Information
AS OF 10/31/2021
Europe 46.98%, Asia-Pacific ex Japan 24.38%, Japan 21.97%, United States 1.99%, Emerging Markets0.32%
Income4ever aka Cyclenut profile picture
Nicely done
I like individual reits and RQI in the space and new Hoya Capital ETF RIET is looking intresting as well
Limobob profile picture
@Income4ever aka Cyclenut I do both as well
GA Race Walker profile picture
@Income4ever aka Cyclenut Iike the individual reits too and own CTRE, MPW, WPC, etc. but that can have a big crash also. Some painful REITS I owned were OHI and (VTR) VENTAS to name two. Look at those charts. Mutual funds and ETFS are more diversified and not as volatile.
Income4ever aka Cyclenut profile picture
@Retirement Media
Yep, I hold O, VICI, MPW, WPC, EPR and RQI.
I also hold several mreits... AGNC, ABR, BRMK and EFC
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