7 Best REIT ETFs to Buy for 2022

·6 min read

Invest in REIT ETFs to tap into surging real estate prices.

Housing prices were simply on fire in 2021. Real estate data lags a little bit but data released at the end of December showed that U.S. home prices surged 18.4% through October compared with the prior year. And this was actually a decrease from the prior month, which saw a 19.1% year-over-year leap in home prices. One way to play this trend is, of course, to own a house. But real estate investment trusts, also known as REITs, offer a unique way to play real estate trends. If you're new to REITs or if you simply don't want to have to worry about picking individual winners in a crowded market, consider these seven best REIT exchange-traded funds to buy for 2022.

Vanguard Real Estate ETF (ticker: VNQ)

A $91 billion behemoth, this REIT ETF from Vanguard is one of the simplest ways for folks to invest in real estate via a brokerage account or retirement plan. The portfolio contains 168 total holdings and spans all manner of properties, ranging from residential real estate to shopping malls to nursing homes to industrial parks. Top positions include specialized telecom real estate company Crown Castle International Corp. (CCI) and mall giant Simon Property Group Inc. (SPG), to name a few representative holdings. If you want to play real estate trends broadly, VNQ is the most popular way to do so.

iShares US Real Estate ETF (IYR)

Coming in at number two among real estate funds when measured by assets is this iShares offering with "only" $7.5 billion in cash under management. The list is much more focused than the Vanguard REIT ETF, with just under 90 total positions at present. That makes the fund a bit more top-heavy, with two holdings -- telecom property owner American Tower Corp. (AMT) and logistics and warehouse giant Prologis Inc. (PLD) -- collectively representing about 15% of the total portfolio at present. Still, IYR hasn't lost a step with VNQ despite this smaller list of holdings; both have moved 23% higher in the last year to outperform the broader S&P 500's 15% return in the same period.

Charles Schwab U.S. REIT ETF (SCHH)

A slightly different REIT ETF is this Schwab fund that has about 140 components in the real estate sector, though it intentionally screens out mortgage REITs that own paper instead of property and "hybrid" REITs that may not fit the traditional definition of real estate companies. With more than 10 years of trading history, it's a very popular and established option despite coming in at number three on assets under management with about $6.6 billion at present. One particularly interesting feature is that SCHH has a portfolio turnover of about 5% annually -- meaning that on average, only seven total stocks move off this list in a given year. That lends a lot of stability and helps keep costs very low at an expense ratio of just 0.07% annually, or $7 each year on every $10,000 you invest.

Real Estate Select Sector SPDR Fund (XLRE)

Rounding out the top four REIT ETFs with the final entrant from major ETF asset managers is this REIT fund from SPDR with just over $6 billion in net assets under its belt at present. Its makeup is quite similar to some of the prior funds in some ways -- including telecom property owner American Tower and warehouse and logistics facilities owner Prologis Inc. as its top positions. However, its incredibly focused list of just 29 total positions as of this writing is a big difference. That has resulted in significant outperformance lately, as the fund has tacked on 28% in the last year. However, investors should keep in mind that this kind of "overweight" philosophy can cut both ways if the short list of components underperform. But that risk may be worth the reward as long as its top real estate holdings have a nice tail wind behind them.

iShares Cohen & Steers REIT ETF (ICF)

This domestic REIT fund is much narrower than the other ETFs on this list, with a total portfolio of just 30 companies and a mandate to offer "exposure to large real estate companies that are dominant in their respective property sectors." In other words, like XLRE this iShares REIT ETF is designed to give you a clear focus on a short list of top names. Specifically, 30% of assets are in the top four holdings alone: aforementioned names Prologis, Crown Castle, and American Tower joined by data-center REIT Equinix Inc. (EQIX) which owns the physical real estate to store the actual data that powers "the cloud." ICF's performance has slightly lagged its peers, however, so it's proof that a small list of components is only in your interest when they move in the right direction.

iShares Mortgage Real Estate Capped ETF (REM)

It's worth noting that thus far, most of the REIT ETFs are general plays on all kinds of real estate. However, many investors are most interested in the red-hot U.S. housing market instead of warehouses or strip malls. If that's your concern, then check out REM, a mortgage-focused REIT ETF. To be clear, the stocks in this fund, like Annaly Capital Management Inc. (NLY) or AGNC Investment Corp. (AGNC), are more like financial firms as they only own mortgage "paper" and not physical properties. Still, they are structured as REITs to get the operational benefits and are one of the more direct ways to play residential trends, instead of the usual suspects like home improvement stocks or homebuilders.

Vanguard Global Ex-U.S. Real Estate ETF (VNQI)

One final element of real estate investing worth considering is a geographic diversification outside of the U.S. Sure, a lot of the headlines lately are about rising U.S. home prices and many of the big-name REITs you're likely most familiar with are domestic companies, but it's a great big world out there with plenty of real estate opportunities overseas. VNQI is an "ex-U.S." fund that specifically excludes U.S. players, so it's a perfect way to layer in international exposure. The fund has about 700 stocks, too, scattered around the world in a truly diverse strategy that includes 47% of assets in Asia and about 29% of assets in Europe. And with roughly $5.4 billion in assets under management at the beginning of 2022, it's hardly a niche fund and should offer the stability and liquidity necessary for you to invest with confidence.

The seven best REIT ETFs to buy for 2022:

-- Vanguard Real Estate ETF (VNQ)

-- iShares US Real Estate ETF (IYR)

-- Charles Schwab U.S. REIT ETF (SCHH)

-- Real Estate Select Sector SPDR Fund (XLRE)

-- iShares Cohen & Steers REIT ETF (ICF)

-- iShares Mortgage Real Estate Capped ETF (REM)

-- Vanguard Global Ex-U.S. Real Estate ETF (VNQI)

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