[PRO Tips] Will REITs regain growth momentum in 2024? 3 REITs ETFs you must know if you want to invest in real estate.

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What are REITs?

REITs, the full name of "Real Estate Investment Trusts," is an investment tool that converts various real estate properties such as residences, shopping malls, and office buildings into securities. Generally, buying real estate requires a large amount of money, and renting it out also requires management, maintenance and other issues. The advantage of REITs is that investors can participate in the long-term appreciation trend of the real estate market by purchasing its stocks or trust units, just like buying company stocks. Become a shareholder in a rent-collecting apartment without the responsibility for maintenance and management.

At present, the REITs market in the United States has reached a certain scale and the types are quite diverse. From residential buildings, commercial buildings, offices, telecommunications towers to nursing homes... etc., there are related REITs companies managing various fields.

In general, REITs are a convenient, diversified, and relatively liquid way to invest in real estate, allowing more people to have the opportunity to participate in the real estate market. This article will introduce the types and investment characteristics of REITs and share 3 options. REITs ETFs.

REITs investment features

REITs are a unique investment vehicle in the stock market. Here are some of the main features of REITs:

． Real estate diversification:
REITs typically hold many different types of real estate, including residential, commercial, industrial, office buildings, etc., allowing investors to achieve broader real estate diversification to reduce risk.

． Invest in real estate with lower threshold:
Compared with the large amounts of capital required to purchase real estate directly, REITs provide investors with the opportunity to enter the real estate market with a relatively low threshold.

． Forced distribution of income:
According to U.S. law, REITs must distribute a majority (usually more than 90%) of their profits to investors, usually in the form of dividends, so REITs have become one of the attractions for investors who want to create stable cash flow.

． Interest rate sensitivity:
The performance of REITs is generally affected by changes in interest rates. High interest rates may increase financing costs and have a negative impact on the profitability of REITs; conversely, in a low interest rate environment, REITs usually benefit from lower financing costs, which helps improve their profitability.

． Stock price growth is limited:
Since REITs are forced to distribute most of their profits to investors, REITs have limited opportunities to reinvest earnings compared to general companies, so their stock price growth may be relatively limited.

What are REITs?

The types of REITs are very diverse, covering different real estate types and industries. They are divided into the following three types according to their operating models:

． Equity REITs:
Investment objects: Mainly invest in the ownership and operation of real estate, including residential, commercial, industrial and various other real estate types.
Source of income: Mainly holding and managing real estate, generating income through rent and the growth of real estate value.
Equity REITs are the most mainstream type of REITs and the type of REITs most accessible to investors.

． Mortgage REITs:
What it invests in: Invests primarily in owning and holding mortgages rather than actual real estate.
Source of income: The main source of income is to provide mortgage loans and earn corresponding interest and loan fees.

． Hybrid REITs (Hybrid REITs):
Portfolio: Combines elements of equity and mortgage REITs to invest in real estate ownership and held mortgage loans.
Sources of income: Earn both rental and mortgage-related income at the same time, with high diversification.

The following are common types of equity REITs:

． Residential REITs: Mainly invest in and operate residential real estate, including apartment buildings, multi-family housing, etc., such as Equity Residential (EQR), Invitation Homes Inc (INVH).
． Commercial retail REITs: Investments include real estate for commercial purposes such as office buildings, shopping malls, and retail storefronts, such as Simon Property Group Inc (SPG) and Realty Income Corp (O).
． Office building REITs: Focus on office building real estate and provide rental space for businesses and institutions, such as Vornado Realty Trust (VNO).
． Industrial REITs: Invest in and operate industrial real estate, including warehouses, distribution centers, manufacturing plants and more, such as Prologis Inc (PLD).
． Hotel and Resort REITs: These REITs invest in hotels and resorts and generate revenue from room rentals and related services, such as Ashford Hospitality Trust Inc (AHT).
． Infrastructure REITs: Invest in infrastructure projects such as telecommunications towers, energy facilities, utilities, transportation facilities, data centers, etc., such as American Tower Corp (AMT).
． Healthcare REITs: Focus on investing in and operating hospitals, medical office buildings and other healthcare-related real estate, such as Welltower Inc (WELL), Ventas Inc (VTR).
． Agriculture and Forestry REITs: Focus on farmland, forestland and related agricultural or forestry assets, such as Weyerhaeuser Co (WY), Rayonier Inc (RTN).
． Global REITs: REITs covering multiple regions and countries, providing opportunities to invest in real estate around the world.
． Hybrid REITs: REITs that combine multiple real estate types for better risk diversification.

REITs investment performance

In general, REITs are often susceptible to interest rates because they often need to borrow money to expand their real estate investments. When interest rates rise, financing costs may increase because higher interest payments need to be made, which may put pressure on REITs' profitability.

However, REITs may benefit when interest rates fall. Historically, the end of a rate hike cycle has generally been more positive for REITs, with the S&P 500 gaining an average of 10% in the 12 months following the end of a rate hike cycle since 1980, according to Putnam Investments. According to statistics from CenterSquare Investment Management, since 1995, public REITs have risen 20.1% in the year after the last interest rate hike cycle, which means that after the interest rate hike cycle, the performance of REITs may be stronger than the broader market.

Recent data shows that global fund managers further increased their exposure to REITs in December, raising the proportion of their portfolios allocated to REITs by 15% to the highest level in nearly a year. The market has also observed REITs gradually gaining investor attention, with the Schwab U.S. REIT ETF (SCHH), for example, attracting approximately $35 million in net inflows last week, its largest inflow since October.

This series of phenomena shows that investors’ views on REITs may be changing, and their confidence in the real estate market has increased significantly. This also reflects the market’s certain optimistic expectations for the performance of REITs after the interest rate hike cycle ends.

In addition to buying REITs, you can also invest in REITs ETFs

There are many types of REITs, and the performance of each type of REITs varies under different economic conditions or circumstances. If you are not yet familiar with the characteristics of various REITs, investing in REITs ETFs is also an option, and it can also reduce the risk of investing in a single REITs.

What are REITS ETFs?

The following will introduce 3 REITS ETFs: VNQ, SCHH, XLRE

1. VNQ - Vanguard Real Estate ETF

VNQ is currently one of the largest REITs ETFs under management. It mainly invests in the real estate market in the United States. The top five types of REITs are telecommunications tower REITs (13.7%), retail REITs (12.6%), industrial REITs (12.2%), and data centers. REITs (9.1%) and healthcare REITs (8.6%).
． VNQ Publisher: Vanguard

． VNQ tracks the index: MSCI US Investable Market Real Estate 25/50 Index

． VNQ management fee: 0.12%

． VNQ asset size: 33.3 billion

． VNQ ETF constituents

． VNQ ETF dividend distribution/yield rate: 4%, quarterly distribution

． VNQ ETF Features

1. The highest dividend distribution: VNQ is the REITs ETF with the highest dividend distribution among the ETF series in this article.

2. Concentration of investment areas: VNQ focuses on investing in the real estate market in the United States.

3. Largest management scale: VNQ is currently the REITs ETF with the largest management scale.

． VNQ ETF share price analysis

VNQ's 52-week trading price range is between $70.61 and $94.52. You can query VNQ's related ETF information through FinGuider's "ETF Information Quick Search", including its historical performance, discount and premium, net fund flows and risk indicators in the past few years.

2. SCHH - Schwab U.S. Real Estate Investment Trust ETF

SCHH is currently the REITs ETF with the lowest expense ratio and is among the top 3 ETFs by size under management. Mainly investing in the real estate market in the United States, the top five types of REITs are retail REITs (14.1%), industrial REITs (13.8%), telecommunications tower REITs (13.6%), multifamily apartment REITs (9.2%) and healthcare REITs (8.8 %).
． SCHH Publisher: Charles Schwab

． SCHH Tracking Index: Dow Jones Equity All REIT Capped Index

． SCHH management fee: 0.07%

． SCHH asset size: 6.4 billion

． SCHH ETF constituents

． SCHH ETF dividend distribution/yield rate: 3.46%, quarterly distribution

． SCHH ETF Features
1. Lowest expense ratio: SCHH is the REITs ETF with the lowest expense ratio among the ETF series in this article.

2. Concentration of investment areas: SCHH focuses on investing in the real estate market in the United States.

． SCHH ETF share price analysis

SCHH's 52-week trading price range is $37.46 to $43.22. You can query SCHH's related ETF information through FinGuider's "ETF Information Quick Search", including its historical performance, discount and premium, net fund flows and risk indicators in the past few years.

3. XLRE-SPDR Real Estate Stock ETF

XLRE is an ETF tracking the real estate sector REITs in the S&P 500 index and is among the top 3 ETFs by size under management. The top five types of REITs are professional real estate REITs (44.75%), retail REITs (12.27%), industrial REITs (12.2%), residential REITs (12.12%) and healthcare REITs (8.4%). The top five categories account for the largest share of the entire ETF. The share is quite large, so performance is susceptible to being affected by these major holdings.
． XLRE Publisher: State Street

． XLRE Tracking Index: Real Estate Select Sector Index

． XLRE management fee: 0.10%

． XLRE asset size: 5.8 billion

． XLRE ETF constituents

． XLRE ETF dividend distribution/yield rate: 3.36%, quarterly distribution

． XLRE ETF Features
1. The smallest number of holdings: XLRE has only 30 holdings, which is the smallest among this ETF series.

2. Concentrate on mid- and large-cap stocks: Because XLRE tracks the real estate sector in the S&P 500 index, most of its holdings are focused on mid- and large-cap stocks.

． XLRE ETF share price analysis

XLRE’s 52-week trading price range is between $36.38 and $42.53. You can query XLRE's related ETF information through FinGuider's "ETF Information Quick Search", including its historical performance, discount and premium, net fund flows and risk indicators in the past few years.

REITs ETF comparison

VNQ, SCHH and XLRE are all REITs that invest primarily in the U.S. real estate market, but differ in tracking indexes, management fees and asset size. Investors can choose the REITs ETF that suits them based on their own investment goals and preferences!