A Hassle-Free Play on the U.S. Real Estate Sector

Real estate investment trusts (REITs) have seen a spike in popularity in 2017.

REITs typically purchase office buildings, hotels and other properties to produce income. The Vanguard REIT ETF (VNQ) is a hassle-free play on the U.S. real estate space with a large, well-known investment group.

REITs offer many attractive advantages versus other types of investment vehicles including:

1. High yield – The longer-term average for REITs has been trending in the 7-8% range, well above the yield of the S&P 500 index.

2. Liquidity – REIT shares are bought and sold on a stock exchange, which is a far more efficient and easier market than buying and selling properties directly.

3. Diversification – REITs offer a good way for investors to spread their risk.

4. Simpler tax treatments – distributions from VNQ and other peer ETFs are taxed as ordinary income.

VNQ has $35.33 billion in assets and an expense ratio of just 0.12%. The fund holds a deep basket of 152 companies in its portfolio that covers almost all kinds of real estate. VNQ boasts a huge average daily trading volume of $287.12 million and a very low spread of 0.01%.

Yield-seeking investors sometimes compare the yields of REITs to bonds. While it is true that bonds offer similar income at a generally lower risk, REITs have a much higher potential for growth. As a result, VNQ’s share prices tend to rise and fall more sharply than funds that hold bonds, which is evident in the chart below.

Year to date, VNQ has returned 6.90%, compared to a 20.07% year-to-date return of the S&P 500. VNQ has a dividend yield of 4.8%.

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The REIT’s top five holdings are: Simon Property Group Inc. (SPG), 5.23%; Equinix Inc. (EQIX), 3.76%; Prologis Inc. (PLD), 3.66%; Public Storage (PSA), 3.47%; and AvalonBay Communities Inc. (AVB), 2.60%.

If you are seeking a way to get into the REIT space, consider Vanguard REIT ETF (VNQ) as a potential investment.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.