Revealing a Real Estate Yield Play

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Bloomberg has called it “America’s worst bond-market collapse in at least half a century.”

It was not too long ago that the Treasury yield curve inversion reached levels not seen since 2007, largely due to many investors continuing to believe that the Fed’s decision to quickly raise interest rates would throw the economy into recession.

While that scenario has not yet come to pass, underscored by last week’s unexpectedly good jobs report and today’s inflation data, the question of what bond yields will do and whether inflation will peak or continue rising (necessitating more rate hikes) remain unanswered.

Of course, there are ETFs that will do well if bond yields begin to come back down due to a slowing economy. One such exchange-traded fund (ETF) is the Vanguard Real Estate Index Fund ETF (NYSEARCA: VNQ).

This ETF tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, which measures the performance of real estate investment trusts (REITs) and other investments related to real estate centered around American real estate. The focal difference between the portfolio and the index is that the fund’s managers seem to favor commercial REITs instead of specialized REITs. As is true with regard to many REIT ETFs, distributions from the fund are taxed as ordinary income.

The top holdings in the portfolio are Vanguard Real Estate II Index Fund Institutional Shares (MUTF: VRTPX), American Tower Corporation (NYSE: AMT), Prologis Inc. (NYSE: PLD), Crown Castle Inc. (NYSE: CCI), Equinix, Inc. (NASDAQ: EQIX), Public Storage (NYSE: PSA), Reality Income Corporation (NYSE: O) and Welltower Inc. (NYSE: WELL).

As of Aug. 9, VNQ has risen 7.23% in the past month and 4.04% for the past three months. It is currently down 13.88% year to date.

Chart courtesy of

The fund has amassed $40.13 billion in assets under management and has an expense ratio of 0.12%.

In short, while VNQ does provide investors with access to REITs, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

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.

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