Seven REIT ETF Options: Navigating Real Estate Investment Through Changing Interest Rates

Real Estate Investment Trust exchange-traded funds have faced headwinds as the Federal Reserve adjusted monetary policy in 2018, making the REIT ETF landscape particularly competitive. While major benchmarks like the S&P 500 have outpaced many real estate-focused funds on a year-to-date basis, the recent momentum shift in the third quarter suggests that investor sentiment toward REIT ETF opportunities may be stabilizing. For those exploring real estate exposure through fund structures, understanding the distinct characteristics of available options becomes crucial.

Cost-Conscious Strategy: Ultra-Low Expense Ratios in REIT ETF Selection

When building a REIT ETF portfolio, expense ratios directly impact long-term returns. The Schwab U.S. REIT ETF (SCHH) represents the most cost-effective option among U.S.-listed funds, charging just 0.07% annually on a $10,000 investment. This cap-weighted approach to the Dow Jones U.S. Select REIT Index allocates approximately 40% toward residential and retail properties, with office and specialized REITs comprising the remaining allocation. SCHH maintains a trailing 12-month distribution rate of 2.64%.

The JPMorgan BetaBuilders MSCI US REIT ETF (BBRE), a newer entrant priced at 0.11% per year, has already accumulated over $60 million in assets under management within its first three months. By holding 154 real estate securities across retail, specialized, residential, and office sectors, BBRE offers diversification at minimal cost, making it attractive for fee-conscious investors seeking broad REIT ETF exposure.

Mitigating Rate Sensitivity: The Short-Term Lease Advantage

Rising interest rates disproportionately affect longer-duration real estate holdings. The Nushares Short-Term REIT ETF (NURE), with an expense ratio of 0.35% annually, specifically targets properties with shorter lease terms—apartment buildings, hotels, self-storage facilities, and manufactured home communities. This structural difference significantly reduces the fund’s sensitivity to Fed tightening compared to traditional REIT ETF vehicles. Despite offering this rate-risk protection, NURE maintains an SEC yield exceeding 3%, demonstrating that income generation need not be sacrificed for defensive positioning.

Breaking Free from Market-Cap Weighting

The Invesco S&P 500 Equal Weight Real Estate ETF (EWRE) challenges the cap-weighted convention dominating the REIT ETF space. Despite using an equal-weight methodology that typically favors smaller holdings, EWRE’s 32 component positions average $20.56 billion in market capitalization, retaining a large-cap character. Approximately 59% of this REIT ETF’s portfolio comprises mid-cap stocks, creating a balanced exposure profile. While year-to-date returns lagged, the fund demonstrated 5.62% gains during the third quarter alone.

Emerging Sector Plays: Technology and Infrastructure in REIT ETF Format

The Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) represents a specialized REIT ETF segment focusing on infrastructure properties supporting digital commerce. The fund’s underlying index concentrates on cell tower REITs, data center REITs, and related technology infrastructure holdings, positioning investors to capitalize on e-commerce growth through real estate exposure. Despite its nascent stage, INDS has delivered a 4.24% gain since inception, indicating market receptivity to this REIT ETF differentiation.

Active Management’s Role in REIT ETF Strategy

The Invesco Active U.S. Real Estate ETF (PSR) demonstrates that active management can add value within the real estate category while maintaining cost discipline. At 0.35% annually, PSR remains considerably less expensive than comparable actively managed mutual funds, employing quantitative metrics to identify undervalued securities and manage portfolio risk. The fund holds 70 REITs averaging $21.54 billion in market capitalization and has appreciated 11.41% over six-month periods, earning a four-star Morningstar rating that reflects consistent performance delivery.

International Perspective: European REIT ETF Opportunities

The iShares Europe Developed Real Estate ETF (IFEU) serves investors seeking international diversification while valuations outside the U.S. remain comparatively attractive. Tracking the FTSE EPRA Nareit Developed Europe Index with 103 holdings spanning developed markets, IFEU has appreciated less than 1% annually while European equity benchmarks declined more sharply. The fund’s portfolio emphasizes United Kingdom and German properties, with exposure spanning both Eurozone and non-Eurozone economies. Most compellingly, IFEU yields 4.17%, exceeding comparable domestic REIT ETF yields by over 60 basis points—a meaningful advantage for income-focused investors with longer investment horizons.

The REIT ETF Decision Framework

Selecting among these REIT ETF alternatives requires alignment with individual risk tolerance and objectives. Cost-minimization advocates gravitate toward SCHH and BBRE, rate-sensitive portfolios benefit from NURE’s structural advantages, growth-oriented investors explore INDS’s technology infrastructure exposure, and income seekers appreciate IFEU’s enhanced yield generation. Regardless of selection, the competitive REIT ETF landscape offers sufficient choice to accommodate diverse investment philosophies and market outlooks.