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Options Are Improving for Real Estate ETFs

If you're looking to sink some cash into real estate, exchange-traded funds can offer some choices.

Real estate investment trusts, or REITs, have been red-hot, returning more than 30% in each of the last two years. The surge has cast this humble niche into the spotlight, as more and more investors look to grab a share of the winnings.

But as is the case in so many sectors, the would-be real estate investor confronts an array of ETFs that at first appear more similar than they are different. ETFs, of course, are index funds that trade like stocks. In varying degrees, all four of the real estate investment trust ETFs track seven big REITs -- real estate-focused companies that pass more than 90% of their cash flow through to shareholders through distributions. And though the REIT sector has been growing by leaps and bounds, attracting a host of new players, the group is still small enough that there's plenty of overlap in these indices even beyond the big seven.

As a result, all these ETFs are potentially vulnerable to an economic slowdown that could weaken the U.S. housing industry as interest rates rise from historic lows. Interest-rate worries have already shown their face this year, pushing the group down 6% or so. But regardless of what happens in the market, analysts say investors should choose the fund that's right for their risk tolerance and investment goals. That could mean looking to the more concentrated ETFs for aggressive investors and looking to the lower-cost offerings for longer-term buyers.

The four ETFs are the iShares Dow Jones U.S. Real Estate Index (IYR), the iShares Cohen & Steers Realty Majors Index (ICF), the streetTracks Wilshire REIT Index (RWR) and the Vanguard REIT Vipers (VNQ). All four list as their top holdings the same seven stocks, in slightly varying proportions: Simon Property Group (SPG - Get Report), Equity Office Properties Trust (EOP), Equity Residential (EQR - Get Report), Vornado Realty Trust (VNO - Get Report), General Growth Properties (GGP), ProLogis Trust (PLD) and Archstone-Smith Trust (ASN).

Land Grab
Taking measure of four real estate ETFs
Fund Ticker % YTD Return % 2004 Return Expense Ratio Stocks In Portfolio
streetTracks Wilshire REIT RWR -5.86 32.5 0.28 92
iShares Cohen & Steers Realty Majors ICF -5.82 34.53 0.35 30
iShares Dow Jones U.S. Real Estate IYR -5.49 30.14 0.60 81
Vanguard REIT Index VIPERs VNQ -5.92 - 0.18 121
Source: Morningstar (returns through Jan. 14)

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EQR $76.55 0.00%
ICF $99.16 0.00%
IYR $78.15 0.00%
RWR $92.67 0.00%
SPG $188.71 0.00%


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