REIT ETF performance has been outstanding to begin 2014. The dominant REIT ETF in terms of assets is the Vanguard REIT ETF (VNQ) and it has appreciated more than 10% this year. VNQ compares to the SPDR S&P 500 ETF (SPY) delivering about a 1% return. Check out the chart (below the second paragraph) comparing the funds’ performance.
The strong performance by REIT ETFs has led to eye-popping inflows this year. A quick look at VNQ and the second largest REIT ETF, the iShares Dow Jones US Real Estate Fund (IYR), shows inflows of $2.4 billion through April 7th according to data provider ETF.com. This compares to total inflows of $2.6 billion for all of 2013. Thus 2014 has already achieved 92% of 2013’s money flows in just over 25% of the time. To say REIT ETFs are starting the year off strong is an understatement.
Vanguard REIT VIPER
An Eventful Journey
Being an owner of a REIT ETF has not always been a walk in the park however. A look back at the last seven years in the chart below shows REITs have produced their share of memorable moments. From significant underperformance versus the S&P 500 during the Financial Crisis of 2008 – 2009 (down 70%) to the current hot streak versus the S&P that began in 2013, REITs are not for investors seeking to avoid volatility. However for those comfortable with equity-like volatility, REITs have offered periods of substantial outperformance as evidenced in the chart below.
When considering REIT ETFs focused on the U.S. marketplace, there are four that stand out in terms of assets. The funds have at least $2 billion of assets under management and expense ratios ranging from 10bps to 48bps. Ordered by assets under management, the ETFs include:
- Vanguard REIT (VNQ), 10bps expense ratio
- iShares U.S. Real Estate (IYR), 48bps expense ratio
- iShares Cohen & Steers Realty Majors REIT (ICF), 35bps expense ratio
- SPDR Dow Jones REIT (RWR), 25bps expense ratio
Even with the second highest expense ratio the iShares Cohen & Steers Realty Majors ETF (ICF) has been the performance leader since the end of 2013. Here’s a chart comparing all four ETFs’ performance since December 31, 2013 through April 8, 2014.
REIT ETFs are on a hot streak to begin the year. Strong performance versus the equity market has led to sizable inflows into the asset class. While REITs are a part of many existing portfolio allocations, investors placing new money into REIT ETFs should carefully assess both the short-term and long-term behavior of this asset class before investing.