ETFs that track real estate investment trusts are outperforming the broader market in 2010 and investors that want to get involved in the action have several options.

For investors looking for exposure to U.S. real estate, the two most popularly-traded and liquid funds are iShares Dow Jones U.S. Real Estate Index Fund ( IYR) and iShares Cohen and Steers Realty Majors Index Fund ( ICF).

The holdings of both funds are comprised of U.S. real estate investment trusts, although IYR, with 77 holdings, has roughly twice as many as ICF's 31 holdings.

The two funds have performed similarly year to date, which is not surprising considering that several holdings overlap. For instance, the top holding of both IYR and ICF is Simon Property Group ( SPG), which accounts for about 8% of net assets in both ETFs.

In fact, the similarities between the two funds run even deeper. For instance, nine out of the top ten holdings in each fund are the same, although allocations to each company differ. IYR, with its larger number of holdings, only devotes 42.6% of net assets to its top ten, while ICF devotes 60.4%.

Investors should also keep in mind that, at least in the case of IYR, the companies listed only invest in income-generating properties. So, although this does not mean that all the companies invest exclusively in commercial real estate, it does mean that where the properties are residential, they are of the rental kind, such as apartments. IYR features holdings that specialize in a variety of different real estate investment sectors and some of the best represented ones include, industrial and office REITs, retail REITs, and residential REITs.

With their respective holdings, the two funds have managed to outperform the S&P 500 year to date by a wide margin. While the S&P500 is barely in positive territory year to date, ICF and IYR have gone up by about 18% and 15%, respectively.

For investors interested in the real estate sector, there are also ETFs that provide the ability to take a leveraged approach. The most popular two funds of this type are ProShares Ultra Real Estate Fund ( URE) and ProShares UltraShort Real Estate Fund ( SRS). These two ETFs track the same index as IYR, but are designed to reflect twice the daily performance of the index in the case of URE, and the inverse of twice the daily performance of the index in the case of SRS. I do not advise investors to use leveraged funds, positive or inverse, unless they have a solid understanding of how the vehicles operate.

Going forward, the outlook for REITs is mixed and commercial real estate still may have some stumbling blocks to clear. On the other hand, they are back near their May highs and on the verge of making new highs for 2010, while the S&P 500 still languishes about 8% below its high for the year. If the funds can move forward with strength from this point, it will be very optimistic for their outlook in the near future.

At the time of publication, Dion Money Management owned ICF and IYR.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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