REIT ETF comparison 2016

Last ETF comparison was about dividend and value ETFs. Real estate trusts are also good option for dividend investors. Many investors also think that real estate is even better option than to invest in stocks. This mostly comes from that banks are willing lend much more money to concrete things like buildings instead of stocks.  But buying one building or flat is quite risky and time consuming to find people to rent it for or fear unexpected repair needs from pluming systems.

Key points

In REIT space there are basically two types of companies.

High yield and Dividend growth

Example of dividend growth REIT would be Realty income corporation (O). They are investing in low risk related property that are more or less immune to the state of the economy.  Yield is low but growing due to large portion invested in to new property. Read more on Realty income here

And in other end of the spectrum we have mortgage REITs with their huge yields. These trusts invest only to real estate bonds and ty to find financing at markets with lower interest rate than bonds produce. Usually debt load is very high with these and net asset value can suddenly decrease when there are losses in high risk debt papers.  Example of this type of MREIT is AGNC  American Capital Agency Corp.
However with ETFs you really don’t have this split as there are hundreds of companies with many strategies and payout ratios and policies. But again this does not mean that there are no differences with REIT ETFs

Our contenders

IQ US Real Estate Small Cap ETF (ROOF)

The IQ US Real Estate Small Cap ETF seeks investment results that correspond, before fees and expenses, to the price and yield performance of the IQ US Real Estate Small Cap Index.
The Index is float adjusted market cap weighted and seeks to give investors a means of tracking the overall performance of small capitalization U.S. real estate companies.
Gross expense ratio is 0.69%
Does small cap work similarly as in regular stocks? More volatility with promise of higher returns? We will see at the end of the article.
ROOf1 REIT ETF comparison 2016
roof sectors

PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY)

KBWY is an outsider in the US real estate”“KBWY’s basket tilts very small”” space. The fund rejects the traditional cap-weighted methodology in favor of dividend yield-weighting. KBWY also intentionally nixes large cap REITs in favor of smaller capitalization alternatives. This produces a basket that tilts very small—70% small- and microcaps—and also underweights residential REITs in favor of commercial REITs. Still, KBWY’s dividend-focused strategy makes some sense: the reliable dividends of REITs are a big draw for real estate investors. KBWY’s yield currently looks strong next to our benchmark, but its yield advantage is unstable, in part because the fund’s long-term returns are more variable due to its small cap bias. Note too that the fund isn’t as liquid as IYR and VNQ, so it’s not for frequent or casual trader.(
Expense ratio is 0.35%
Difference to ROOF is that this fund focuses on high yield and also invests to midcap REITs

kbwy1 REIT ETF comparison 2016
kbwy sectors

Vanguard REIT ETF (VNQ)

Invests in stocks issued by real estate investment trusts (REITs), companies that purchase office buildings, hotels, and other real property.
Goal is to closely track the return of the MSCI US REIT Index, a gauge of real estate stocks.
Offers high potential for investment income and some growth; share value rises and falls more sharply than that of funds holding bonds.
Appropriate for helping diversify the risks of stocks and bonds in a portfolio.
Expense ratio is quite “legendary” 0.12% 🙂
This is often considered to be backbone of REIT portfolios. Let’s see if old dog can fight back these new comers.

VanEck Vectors Mortgage REIT Income ETF(MORT)

MORT is a fairly straightforward portfolio of MORT is a fairly straightforward portfolio of mortgage REITs”” mortgage REITs, with an expense ratio that’s lower than the other mortgage REIT-based ETF in the segment, REM. However, MORT’s weaker liquidity detracts from its low-fee advantage. True to its name, MORT doesn’t stray far from REITs. (
Expense ratio: 0.41%
This also has high yield of 8% (24.9.2016)
Does high yield help mortgage REIT to win here?

iShares International Developed Property ETF (WPS)

Exposure to the global real estate market (excluding the U.S.), diversified across property sectors
Access to a broad range of international real estate stocks and real estate investment trusts (REITs), which invest in real estate directly and trade like stocks
Use to diversify your portfolio and express an international view on real estate
 Like the figure shows, this fund invests mostly to developed countries
Expense ratio: 0.48%
wps1 REIT ETF comparison 2016

Performance review and conclusion

Here is performance review of the ETFs.This is total return and not only ETF price change because dividends play large role with these ETFs.


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reit_bench REIT ETF comparison 2016


reit_return REIT ETF comparison 2016


reit_vola REIT ETF comparison 2016

We can see that we have two winners KBWY and VNQ. KBWY was the yield focused small to midcap fund and VNQ is the classic Vanquard super cost efficient and liquid fund. Mortgage REIT(MORT) and international fund (WPS) underperformed significantly. Also volatility between these ETFs is more or less the same; there is no bright side to two losers here.
Total return charts were generated by:


Currently I don’t have any of these ETFs in the portfolio. VNQ seems like no brainer with strong performance and low costs.  And because costs with KBWY is also low, I would not mind the extra diversification to small and mid cap higher yield with that fund.
Keep on investing!
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