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REITs are attractive as diversifiers: they tend to have stock-like returns
and risk, but are relatively uncorrelated with other asset classes. For
more information about REITs, see here.
There are several very similar investment options available. Which is
best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Vanguard Real Estate Index Fund Admiral Shares (VGSLX). E/R: 0.10%.
This fund
tracks the Morgan Stanley REIT index — an index of equity REITs. Its
expense ratio is admirably low.
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| Fidelity Real Estate Index Fund (FSRNX). E/R: 0.07%.
This fund tracks the Dow Jones U.S.
Select Real Estate Securities Index of equity REITs and other real estate
securities.
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| Schwab U.S. REIT ETF (SCHH). E/R: 0.07%. This ETF tracks the
Dow Jones U.S. Select REIT Index of Equity REITs. For more information on ETFs, see here.
Our preference for SCHH over VNQ is very small.
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| iShares Core U.S. REIT ETF (USRT). E/R: 0.08%. This ETF
tracks the FTSE Nareit Equity REITS Index. As an ETF, this fund is expected to be perfectly
capital-gains tax efficient. For more information on ETFs, see here.
|
| Vanguard Real Estate Index Fund ETF Shares (VNQ). E/R: 0.10%.
This is the ETF share class of the Vanguard Real Estate Index Fund (VGSLX)
above. For
more information on ETFs, see here.
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| DFA Real Estate Securities Portfolio (DFREX). E/R: 0.18%.
This fund passively invests in equity and hybrid REITs. We'd prefer that
the hybrid REITs be left out. But even if they were, this fund's expense
ratio is a little high, in our opinion.
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| SPDR Dow Jones REIT ETF (RWR). E/R: 0.25%. This ETF tracks the
Dow Jones REIT index of equity REITs. Its low expense
ratio suggests it might be a superior choice to DFREX and TCREX below. For more information on ETFs, see here.
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| iShares Cohen & Steers Realty Majors Index Fund (ICF). E/R:
0.34%. This ETF tracks the Cohen & Steers Realty Majors Index of
relatively "large and liquid REITs that may benefit from future consolidation
and securitization of the U.S. real estate industry." This fund is quite
a bit less diversified than other options in this asset class. With its
relatively high expense ratio and unnecessarily concentrated portfolio, we see
little reason to use it instead of the above alternatives. For more
information on ETFs, see here.
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| iShares Dow Jones U.S. Real Estate Index Fund (IYR). E/R:
0.42%. This ETF tracks the Dow Jones U.S. Real Estate Index of companies
in the hotel and resort business and REITs that invest in apartments, offices,
and retail buildings. For more
information on ETFs, see here.
|
| TIAA-CREF Real Estate Securities Fund Advisor Class (TIRHX). E/R: 0.64%.
This fund passively invests in real estate-related stocks, but principally
in REITs. With its relatively high expense ratio, we see little reason
to use it instead of the above alternatives.
|
| PIMCO RealEstateRealReturn Strategy Fund Institutional Shares (PRRSX). E/R:
0.74%. This
is an "enhanced" REIT Index Fund (a.k.a., a "synthetic" index fund). It
buys REIT index derivatives (e.g., futures, swaps, etc.) and invests the
remaining cash in TIPS in an attempt to outperform the index. With its
relatively high expense ratio, we see little reason to use it instead of the
above less costly (and less actively managed) alternatives.
|
Note that REITs should generally not be in taxable accounts, as they are
relatively tax-inefficient.
| Vanguard Variable Annuity Real Estate Index Subaccount. E/R: 0.57%. This
variable annuity subaccount tracks the Morgan Stanley REIT index — an index
of equity REITs. REITs are, by their very nature, quite tax-inefficient.
You should generally avoid having them in taxable accounts in the first place.
But if you must, it MAY be a good idea to do it inside a non-qualified
Variable Annuity (which means it wouldn't really be in a taxable account after all).
For the most part, this recommendation only applies if you already own a
variable annuity — in general, we don't suggest
going out and buying a variable annuity just to invest in this subaccount.
A variable annuity is a VERY long-term investment with
relatively little flexibility. For more info on variable annuities, see the papers and articles
here. Most
Variable Annuities are VERY bad deals.
|
| Vanguard Real Estate Index Fund Admiral Shares (VGSLX). E/R: 0.10%.
This fund
tracks the Morgan Stanley REIT index — an index of equity REITs. Its
expense ratio is admirably low.
|
| Schwab U.S. REIT ETF (SCHH). E/R: 0.07%. This ETF tracks the
Dow Jones U.S. Select REIT Index of Equity REITs. For more information on ETFs, see here.
Our preference for SCHH over VNQ is very small.
|
| iShares Core U.S. REIT ETF (USRT). E/R: 0.08%. This ETF
tracks the FTSE Nareit Equity REITS Index. As an ETF, this fund is expected to be perfectly
capital-gains tax efficient. For more information on ETFs, see
here.
|
| Vanguard Real Estate Index Fund ETF Shares (VNQ). E/R: 0.10%.
This is the ETF share class of the Vanguard Real Estate Index Fund (VGSLX)
above.
However, unlike other non-Vanguard ETFs, this fund will be only as tax efficient
as its underlying fund — no more and no less. For
more information on ETFs, see here.
|
| SPDR Dow Jones REIT ETF (RWR). E/R: 0.25%. This ETF tracks the
Dow Jones REIT index of equity REITs. Its low expense
ratio suggests it might be a superior choice to the other options below. As an ETF, this fund is expected to be perfectly
capital-gains tax efficient. For more information on ETFs, see here.
|
| iShares Cohen & Steers Realty Majors Index Fund (ICF). E/R:
0.34%. This ETF tracks the Cohen & Steers Realty Majors Index of
relatively "large and liquid REITs that may benefit from future consolidation
and securitization of the U.S. real estate industry." This fund is quite
a bit less diversified than other options in this asset class. With its
relatively high expense ratio and unnecessarily concentrated portfolio, we see
little reason to use it instead of the above alternatives. As an ETF,
this fund is expected to be perfectly capital-gains tax efficient. For more information on ETFs, see here.
|
| iShares Dow Jones U.S. Real Estate Index Fund (IYR). E/R:
0.42%. This ETF tracks the Dow Jones U.S. Real Estate Index of companies
in the hotel and resort business and REITs that invest in apartments, offices,
and retail buildings. With its relatively high expense ratio, we see
little reason to use it instead of the above alternatives. As an ETF,
this fund is expected to be perfectly capital gains tax efficient. For more information on ETFs, see here.
|
| Fidelity Real Estate Index Fund (FSRNX). E/R: 0.07%.
This fund tracks the Dow Jones U.S.
Select Real Estate Securities Index of equity REITs and other real estate
securities.
|
| DFA Real Estate Securities Portfolio (DFREX). E/R: 0.18%.
This fund passively invests in equity and hybrid REITs. We'd prefer that
the hybrid REITs be left out.
|
| TIAA-CREF Real Estate Securities Fund Advisor Class (TIRHX). E/R: 0.64%.
This fund passively invests in real estate-related stocks, but principally in REITs. With its relatively high expense ratio, we see little reason to
use it instead of the above alternatives. |
This web page contains the current opinions of Eric E. Haas at the time it is
written — and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying — and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
