Real estate investment trusts (REITs) offer the ability to invest in commercial real estate within the comfort of your brokerage account. ETFs in turn offer the ability to invest in a diversified basket of REITs. The Morningstar article This REIT ETF Remains Prettiest on the Block by Abby Woodham offers up reasons why the Vanguard REIT ETF (VNQ) is the optimal choice, including comparisons with similar products. Highlights:
- Low expense ratio. VNQ expense ratio is 0.10%.
- Low tracking error. VNQ’s historical performance only lags its benchmark index by 0.03%, a number even lower than its expense ratio.
- Large, mid, and small-cap exposure. VNQ’s holdings include smaller REITs that other ETFs often exclude.
- Exclusions. VNQ excludes mortgage REITs and non-real-estate specialty REITs (timber, prisons). This could be considered good or bad, as these will act differently than traditional REITs. I kind of like timber REITs, though.
- Schwab US REIT ETF (SCHH) is slightly cheaper (0.07% e.r.) but lacks small-cap exposure.
- iShares US Real Estate ETF (IYR) includes Mortgage and Specialty REITs but is more expensive (0.46% e.r.)
I agree with most of the points made; I use VNQ for my REIT exposure. It’s good to learn more about the competition as well. The same underlying holdings of VNQ are also available in mutual fund form: