A Hassle-Free Play on The U.S. Real Estate Sector
By: Jim Woods
Real estate investment trusts (REITs) have seen a spike in popularity in recent times.
REITs typically purchase office buildings, hotels and other properties to produce income. The Vanguard REIT ETF (VNQ) is a hassle-free play on the U.S. real estate space with a large, well-known investment group.
REITs offer many attractive advantages versus other types of investment vehicles including:
- High yield– The longer-term average for REITs has been trending in the 7-8% range, well above the yield of the S&P 500 index.
- Liquidity– REIT shares are bought and sold on a stock exchange, which is a far more efficient and easier market than buying and selling properties directly.
- Diversification– REITs offer a good way for investors to spread their risk.
- Simpler tax treatments– distributions from VNQ and other peer ETFs are taxed as ordinary income.
VNQ has $35.33 billion in assets and an expense ratio of just 0.12%. The fund holds a deep basket of 152 companies in its portfolio that covers almost all kinds of real estate. VNQ boasts a huge average daily trading volume of $287.12 million and a very low spread of 0.01%.
Yield-seeking investors sometimes compare the yields of REITs to bonds. While it is true that bonds offer similar income at a generally lower risk, REITs have a much higher potential for growth. As a result, VNQ’s share prices tend to rise and fall more sharply than funds that hold bonds, which is evident in the chart below.
Year to date, VNQ has returned 6.90%, compared to a 20.07% year-to-date return of the S&P 500. VNQ has a dividend yield of 4.8%.
The REIT’s top five holdings are: Simon Property Group Inc. (SPG), 5.23%; Equinix Inc. (EQIX), 3.76%; Prologis Inc. (PLD), 3.66%; Public Storage (PSA), 3.47%; and AvalonBay Communities Inc. (AVB), 2.60%.
If you are seeking a way to get into the REIT space, consider Vanguard REIT ETF (VNQ) as a potential investment.
About the Author: Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. He is the editor of Intelligence Report, Successful Investing and Weekly ETF Report. Jim's books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.