3 Best REITs on Vanguard in 2023 is the headline of this article that is written to show how even small-time investors can get into high-priced, dividend-paying real estate.
Real estate investment trusts (REITs) tracked by exchange-traded funds, or ETFs, are among the most popular ways to gain exposure to real estate, and for good reason. For starters, these instruments are liquid and easy to trade, putting expensive office or residential properties within reach for even small-time investors.
Additionally, REITs are well-known for their dividends, and related REIT ETFs throw off significant yield like the rest of the sector. So, what are the best REIT ETFs on Vanguard to buy now?
That depends on the investor’s personal strategy; but fortunately, there are a variety of great choices. Continue reading to discover the 3 best REITs on Vanguard in 2023.
3 Best REITs on Vanguard – Vanguard Real Estate Index Fund (VNQ)
Fund Size: $62.9 billion
Annual Fee: 0.12%
Top Holdings: Equinix, Prologis and American Tower Corp.
When it comes to real estate funds, the Vanguard Real Estate ETF (VNQ) is far and away the leader. This REIT ETF boasts roughly $62.9 billion in total assets under management, seven times the next fund in line, and regularly has daily volume that tops 5 million shares traded.
It is incredibly broad, comprising 165 domestic holdings at present, including telecom infrastructure play American Tower Corp. (NYSE:AMT), warehouse operator Prologis Inc. (NYSE:PLD) and data center operator Equinix Inc. (NASDAQ:EQIX), in addition to more traditional office-building or shopping-mall operators. If you are looking for a simple way to invest in REITs, this liquid and diversified offering is the go-to option.
Furthermore, the fund is one of the favorites because it is such a cheap option. The 0.12% expense ratio compares favorably to almost every other option in the space.
While pretty much all REITs may be rattled at the moment, taking a longer-term focus will allow investors to breathe a little easier. The fund’s 10-year average annual returns of 5.78% can add diversification to your portfolio, generate some yield, and get the real estate exposure investors need.
The fund enjoys Morningstar’s “Gold” analyst rating for its reach, breadth, track record, and quality of management. It allows investors into that illiquid world of real estate, and is truly a ‘set it and forget it’ investment.
3 Best REITs on Vanguard – Vanguard Global ex-U.S. Real Estate ETF (VNQI)
Fund Size: $4.1 Billion
Annual Fee: 0.12%
Top Holdings: Goodman Group, Sun Hung Kai Properties Ltd., Mitsui Fudosan
This fund provides a convenient way to get broad exposure across international REIT equity markets. As an ex-U.S. fund, this Vanguard REIT ETF excludes any real estate holding headquartered in the United States. This creates a very different portfolio from the other funds with about 668 different holdings from across more than 30 countries. The leading region in this fund is Japan, with 23% of assets, followed by 11% in Australia and nearly 11% in Hong Kong.
VNQI offers high potential for investment growth, but share value rises and falls more sharply than that of other funds holding bonds. The dividends are far more volatile and irregular from these companies and from this fund. Currently, the payouts annualize to approximately 0.6% because only one distribution has been paid in the last 12 months. However, in 2021 there was a time the yield topped 8%. So if an investor is not afraid of irregularity or risk, VNQI could be worth a look.
3 Best REITs on Vanguard – Vanguard Real Estate Index Fund Admiral Share (VGSLX)
Fund Size: $20.3 Billion
Annual Fee: 0.12%
Top Holdings: Vanguard Real Estate II Index Fund Institutional Plus Shares, Prologis Inc., American Tower Corp.
Minimum Investment: $3,000
The Vanguard Real Estate Index Fund follows the MSCI US REIT Index, an index that tracks domestic equity real estate investment trusts (REITs and firms that manage properties and collect rent). The fund invests in REITs that purchase office buildings, hotels and other properties.
The fund is composed of a large range of REIT types but most of it is made up of Industrial, Telecom Tower and Retail REITs. Since its inception in November of 2001, this fund has increased its value by 8.99% on average annually. However, this fund comes with high risk as its scope is narrow as it invests solely within the real estate sector.
For investors wanting to gain exposure to the real estate market with only a 0.12% expense ratio, this may be worth the risk as similar funds have an average expense ratio of 1.05%.
3 Best REITs on Vanguard – The Bottom Line
REITs appeal in particular to income-oriented investors, since their corporate structure requires them to disburse at least 90% of their taxable income in the form of dividends. After all, investors are co-owners of the funds, which makes low fees critical in the analysis of funds.
Selecting a good REIT is not that different from selecting a good stock ETF. Focusing on low fees, broad diversification, and sensible portfolio construction is the best way to go about investing in these funds. Vanguard, which is well-known for its pioneering work in creating and marketing index mutual funds and ETFs to investors, has made it easier to find quality REITs like the ones listed above.
Adam Johnson writes for www.dividendinvestor.com and www.stockinvestor.com.