Once upon a time, equity REITs had it bad, and it wasn’t good. But a turnaround could be in the works.

Up until August 2024, exchange-traded funds linked to the real estate sector were struggling. While the S&P 500 has climbed nearly 40% during the past two years, index REIT funds majorly lagged behind, with gains from 10% to 14%.

But with the prospect of lower U.S. interest rates ahead, REIT ETFs have started to push higher.

Let’s examine a few ETFs in the real estate sector that offer financial advisors and their clients a way to participate in the upswing.

iShares Global REIT ETF (REET)
This fund tracks an index of almost 350 publicly traded real estate companies from around the globe, which makes it one of the most diversified REIT funds in the ETF market.

Almost 72% of this fund owns U.S.-based REITs, while the rest is diversified globally. Since most of the fund’s holdings are domestic, it stands to benefit from lower interest rates. For most REITs, this means lower borrowing costs and better cash flow.  

The iShares Global REIT fund is also a solid choice for advisors in search of a core global real estate fund. With an annual expense ratio of just 0.14%, it offers great asset coverage at an affordable cost.

Residential REIT ETF (HAUS)
Launched in 2022, this fund is a pure play on U.S. residential real estate. As of now, it’s also the only actively managed ETF in this category. 

There’s a larger and better-known fund in this space, the iShares Residential and Multisector Real Estate ETF (REZ). However, the iShares version doesn’t exclusively focus on residential real estate, since it has stakes in healthcare and self-storage REITs. The iShares fund’s diluted approach likely won’t appeal to investors seeking dividend income strictly from apartments, town houses and single-family homes.  

The Residential REIT ETF charges 0.60% annually and recently garnered a Morningstar Medalist Rating.

VanEck Mortgage REIT Income ETF (MORT)
Mortgage REITs provide exposure to the real estate sector, but without direct ownership in property, so besides their diversification benefits, mortgage REITs insulate investors from the ups and downs of owning property outright.

As an index-linked fund, the VanEck Mortgage REIT Income fund is built to track the U.S. mortgage REIT marketplace.

The fund invests in a concentrated portfolio of 27 publicly traded mortgage REITs. It also appeals to investors who prioritize high-yield income over performance growth.

The VanEck fund carried a 30-day SEC yield of 11.88% as of August 31, 2024. Dividends are paid quarterly, and the fund charges 0.43% annually.

Shifting Rates
The Federal Reserve’s policy shift away from raising U.S. interest rates and toward cutting them represents major economic change. While all industries will be affected, some will be more than others.

The future remains unpredictable, but the real estate sector is likely to be one of the biggest beneficiaries and potential winners of the Fed’s moves. And that’s why advisors and investors alike should put REIT ETFs on their watch list.  

Ron DeLegge II is the founder of ETFguide.com and author of several books, including Habits of the Investing Greats and Portfolio Architecture: A Handbook for Investors.