VNQ: A David Vs. Goliath Story
Real estate ETFs are an excellent option for investors seeking low-cost, liquid, and diversified exposure to real estate. ETFs can complement or "anchor" an actively-managed strategy of selecting individual REITs.
Our ETF Spotlight Series has taken us across the fund landscape from High Yield REIT ETFs and CEFs to newer innovative funds offering a more growth-oriented approach to real estate.
The plain-vanilla "Core REIT" ETFs still rule the day, however, led by Goliath VNQ. We compare VNQ to five other ETFs that offer "cheap beta" exposure to commercial real estate.
Due to the market-capitalization weighting system and the dynamics of the REIT sector, these ETFs tend to overweight the largest and relatively highest-valued and lowest-yielding REITs.
With as much as 60% of weight in its Top-10 holdings, these ETFs may not offer the level of diversification that many investors assume. The property sector exposure also varies significantly between these funds.