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), Equity Office Properties Trust ( EOP), Equity Residential ( EQR), Vornado Realty Trust ( VNO), 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)

Investors studying the quartet will also see many other stock names repeated, primarily because there are still very few REITs available for the indices to track. According to the National Association of Real Estate Investment Trusts, or NAREIT, the aggregate market cap for the roughly 150 publicly traded equity REITs is around $260 billion. That's less than the market cap for Dow component Microsoft ( MSFT).

The disparities between the ETFs become more apparent once you move beyond the contents of the baskets and start focusing on their construction. The ICF, for instance, is a fairly concentrated 30-stock portfolio whose top 10 holdings account for 57% of its assets.

Meanwhile, at the other end of the spectrum is Vanguard's VNQ. It tracks the Morgan Stanley REIT Index, which comprises 121 stocks. The top 10 stocks account for just 34% of its total portfolio.

Stuck in the middle, the RWR and the IYR hold 92 and 81 stocks, respectively, with top-10 concentrations of 38% and 35% of assets.

Due to its concentration, the ICF bested competing index ETFs in 2004 by returning 34.5%. That's 2 percentage points better than the RWR and 4 points better than the IYR. Vanguard introduced its real estate ETF in late 2004.

Nevertheless, as Ron DeLegge, editor of ETFguide.com, points out, "When REITs run their course, it's likely the ICF could suffer the most due to its heavy concentration of assets."

Dividend yield, often a prime consideration for those looking to invest in REIT funds, also differs widely among the funds, ranging from 4% for the ICF to 5% for the RWR.

Finally, the four ETFs differ greatly when it comes to cost. As might be expected, the Vanguard offering, VNQ, is the lowest-priced ETF, with an expense ratio of 0.18% of fund assets. That's barely a quarter of the cost of the IYR, which is the most expensive at 0.60%. The RWR and ICF charge 0.28% and 0.35%, respectively.

Options are available on the IYR and the ICF only.