A REIT ETF invests in REITs, which are tax transparent real estate investment vehicles.
A REIT is a legal vehicle specifically designed for investing in real estate. REITs were first introduced in the United States in 1960 in order to encourage individual investors to invest in real estate through equities or bonds. Before, typically only high net worth investors could afford to invest in real estate as it involved buying physical buildings.
According to the European Real Estate Association (EPRA), there are 924 REITs as of March 2022, up from 791 in June 2017. In most regions, the number of REITs has increased in recent years as more countries have established REIT regimes. A notable exception has been North America, where mergers and acquisitions have resulted in a smaller number of larger REITs. Often, new REITs are created as a result of large real estate developers, such as Blackstone, floating part of their assets on a public stock exchanges.
The following table indicates per country when a REIT regime has been introduced:
Roughly, there are two types of REIT ETFs:
Within the sector specific REIT ETFs, we distinguish the following:
Investing in this Fund can entail risks. These include:
By investing too many assets in a single sector, a portfolio becomes excessively dependent on its underlying economic or political factors.
There can be a mismatch between the currency of the investor and the currency of the investments, which can adversely impact value in if exchange rates fluctuate.
Real estate tends to be highly sensitive to rising rates, as property purchases are generally financed with debt.
For more information on risks, please see the “Risk Factors” section of the relevant Fund’s prospectus, available on www.vaneck.com.
In contrast to the US, there are no pure REIT ETFs available in Europe to our knowledge. European real estate ETFs all invest part of their portfolio invested in non-REIT real estate stocks because Europe’s fragmented nature means there is no homogenous REIT regime. This means there are fewer REITs and a pure REIT ETF would exclude some of the most interesting real estate stocks.
For instance, the VanEck Global Real Estate ETF is 73% invested in REITs, with the balance of 27% in straightforward real estate stocks1. Additionally, investing outside the REIT universe aids diversification of risk. Examples of non-REIT stocks in the VanEck Global Real Estate ETF are:
1 Data as of 10 June 2022.
Lower risk: Typically lower reward
Higher risk: Typically higher reward