Are these the best real estate ETFs to watch in Q3 2024?

The real estate sector can offer investors reliable long-term returns and has a place in a fully diversified investment portfolio.

Although worldwide property markets are currently experiencing a dip due to economic pressures and interest rate hikes, over the long term the commercial property sector can deliver strong returns. Commercial tenants tend to sign up for leases lasting for between five and 25 years, generating solid income.

According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021, over 25 years return for private commercial real estate properties held for investment purposes just outperformed the S&P 500 Index, with average annualised returns of 10.3% and 9.6%, respectively.

What’s more, via the stock market investors can access commercial property markets, such as retail, hotel, storage and office space, as well as international real estate markets, without owning the property outright themselves.

Many stock market quoted property companies around the world are now REITs – real estate investment trusts. These trusts benefit from certain tax breaks, meaning that they do not pay corporation tax and must pay 90% of their profits from property rental to investors. REITS must generate 75% of their profits from rental income and 75% of their property assets must be available for rental purposes.

The benefits of real estate ETFs

One good way to access the property sector is through buying specialist exchange-traded funds. ETFs are pooled investments which track certain indices and real estate ETFs hold a variety of property Real Estate Investment Trusts (REITS) or stocks, spreading the risk. This can be a more low cost and effective way of investing instead of buying individual REITs, especially for new investors, as well as a way to get access to a mixed basket of REITS.

Be aware that the investment returns from real estate can vary dramatically from year to year, depending on the performance of the companies’ property portfolios.

Find out more about investing in ETFs in general here.

Best real estate ETFs to watch

Here are some of what we think might be the best property ETFs to watch for retail investors. These have been selected for recent market news. Past performance is not a guide to future performance.

1. iShares UK Property UCITS ETF
2. WisdomTree New Economy Real Estate UCITS ETF
3. Invesco S&P 500 Equal Weight Real Estate ETF
4. VanEck Global Real Estate UCITs ETF
5. Global X Green Building ETF

iShares UK Property UCITS ETF

Run by Blackrock, the iShares UK Property UCITS ETF tracks the FTSE EPRA/NAREIT UK Index. Launched in 2007, it invests directly in listed UK REITS and real estate companies, focusing on growth, and is the biggest fund of its kind in the UK.

Domiciled in Ireland, the fund is currently worth £674.8 million and has 41 holdings. Among its top 10 investments are the Segro REIT, which accounts for 21.9% of the fund and owns and manages warehouses, major UK retail and office space owners Land Securities REIT and British Land REIT, Derwent London REIT, which owns substantial real estate in central London, the Tritax Bigbox REIT, which invests in logistics warehouses and self-storage REITs Big Yellow and Safestore Holdings.

The ETF’s performance has been mixed in recent years, however, and is down by 1% over one year, down 6% over three years, -2.7% over five years but up 0.74% over 10 years.

The expense ratio is 0.4% and the ETF is ISA and SIPP eligible, as well as UCITS compliant.

WisdomTree New Economy Real Estate UCITS ETF

Run by Irish Life Investment Managers, the WisdomTree New Economy Real Estate ETF has a slightly different focus to its investment approach than other funds, seeking to invest in property specifically in the technology, e-commerce and life science sectors.

It takes as its benchmark the CenterSquare New Economy Real Estate UCITS Index and it measures the performance of global real estate companies with exposure to technology, science and/or e-commerce related business activities. Around 60% of the fund is in American companies, with 8.1% in Australia, 7.9% in the UK and 6.1% in Spain.

Its top 10 holdings include Digital Realty Trust, which provides the world’s biggest data platform, healthcare real estate firm Ventas, Goodman Group, wireless infrastructure provider American Tower Corp, records manager Iron Mountain and Cellnex Telecom.

In total, 88% of the exchange-traded fund is invested in real estate, while 6.4% is in communication services and 4% in the consumer discretionary sector.

The fund is up 8.4% in the year-to-date, down 9% over three years and down 10% over five years. The expense ratio is 0.58%. Meanwhile, the fund is UCITS compliant, as well as eligible for ISA and SIPP investment.

Invesco S&P 500 Equal Weight Real Estate ETF

Invesco’s real estate ETF invests tracks the S&P 500 Equal Weight Real Estate index and pledges to invest at least 90% of its assets in the sector. It is 100% invested in US stocks and real estate investment trusts (REITS).

Worth $33 million, the fund has 31 holdings, with its top 10 including CoStar, a commercial real estate data provider, global commercial real estate services firm CBRE, Boston Properties and Simon Properties, which invests in shopping malls and mixed-used properties.

The Invesco fund is up 11.5% over one year, up 3.3% over three years and up 5.4% over five years. The total expense ratio is 0.4%.

VanEck Global Real Estate UCITS ETF

The VanEck Vectors Global Real Estate UCITS ETF tracks the GPR Global 100 Index as closely as possible. The Index is reweighted every half year at closing on the third Friday of March and September. Based in Holland, the fund, which is worth €262 million, invests in real estate worldwide. Currently, its top 10 holdings include Prologis Inc, Mitsui Fudosan, Vici Inc and Welltower Inc.

It is 66% invested in the US, 11% in Japan, 3.6% in Australia and 3.4% in the UK. On an annualised basis, the ETF is up 5% over one year, up 0.52% over three years, and up 1.2% over five years. It pays a quarterly dividend and the TER is 0.25%.

Global X Green Building ETF

As its name suggests, the Global X Green Building ETF invests in sustainable real estate opportunities and related sectors around the world. It tracks the Solactive Green Building index. The fund is relatively new, having been created in 2022.

Assets under management are worth $2.4 million and there are currently 103 stocks in the portfolio. The management company says that the fund has “high growth potential” because forecasts suggest the global green building materials market could more than double in value between 2020 and 2028 (from $256 billion to $653 billion). The fund managers use ESG (environmental, social responsibility and corporate governance) screening to select the stocks.

Among its top 10 holdings are UK listed companies Trane Technologies, Segro and Kingspan, as well as Otis Worldwide and Carrier Global Corp. The fund is 42.5% invested in the US, 16.8 in Japan, 7.7% in Ireland and 5.4% in France. Performance data is limited as the fund is less than two years old, but in the year to date the net asset value rose by 18%, however, overall it is down 1.2% since inception in 2022. The expense ratio is 0.45%.

REITS can be relatively illiquid investments. Only invest money you can afford to lose.

How to invest or trade in property ETFs with us

1. Learn more about property ETFs
2. Open an account with us or practise on a demo
3. Select your opportunity
4. Choose your position size and manage your risk
5. Place your deal and monitor your trade

You can either invest in ETFs directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

Learn more about the differences between trading and investing here.

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