Today, I want to share how you can buy the best REIT ETFs in one single investment.
I have previously shared a post where I listed the biggest REITs quoted on the UK Stock exchange.
Real Estate Investment Trusts (REITs) are companies that allow you to invest in the property sector in an easy, hassle-free, way with any amount of money you have.
They allow you to invest in multiple properties ranging from residential homes, retail parks, leisure centers to commercial warehouses, and health care structures through a single investment in one stroke!
With REITs, you still benefit from the same revenue streams as you would if you had done a traditional real estate investment yields in terms of the appreciation and rental income without the hassle, capital outlay, and less time is committed to this investment.
The key point is that your REIT investment is not only 100% passive, but you can get started with as little as £100.
However, finding the REIT that suits your long-term investing goals can be difficult and this is where REIT ETFs come in.
What are REIT ETFs?
ETFs offer exposure to multiple stocks, shares, and funds with one investment so that you can ensure that you have a highly diversified portfolio, rather than relying on the performance of one or two of REITs.
REIT ETFs helps you invest in a wide range of properties through REITs, thereby having a fully diversified property portfolio with lower risk.
They are super-convenient to invest in simply because they are quoted on the stock exchange.
You can invest at the click of a button from any trading platform you registered in.
This also means that you can exit your position at any time; subsequently ensuring that your funds are locked up.
They are passively managed because they are tracing the performance of indexed REITs such that you pay lesser fees than if you were investing in an actively managed mutual fund that has a fund manager behind the desk.
So here is a list of the best UK REITs ETFs for 2022:
1. iShares UK Property UCITS ETF
This is the Best UK REIT for the Domestic Real Estate Industry. If you would love to invest in the domestic real estate industry, you might want to consider the iShares UK Property UCITS ETF.
The iShares UK Property UCITS ETF is listed on the London Stock Exchange. It is a single-country ETF that focuses on growth from diversified exposure to the UK property market and tracks the performance of the FTSE EPRA/NAREIT United Kingdom Index which is composed of REITs and property companies that are investing in the UK.
27% of the fund is invested in diversified REITs, 10.6% in office space, 9.7% in residential, 7.6% in real estate holding and development and 5.7% in retail premises.
How do they select their investments?…
This particular ETF offers a good blend of individual UK real estate investment trusts and blue-chip stocks. Regarding the latter, this will include a selection of UK companies that are actively involved in the domestic real estate scene.
For example, there is a 5.76% holding in UNITE Group plc listed on the London Stock Exchange with a market capitalization of £3.75 billion. UNITE Group is a market leader in the student accommodation arena.
At the other end of the spectrum for this particular ETF, the iShares UK Property UCITS ETF also holds a basket of UK-based REITs. This includes everything from the Assura REIT, Tritax Big Box REIT, Primary Health Properties REIT, and Land Securities Group REIT.
This means you can invest in a large number of UK REITs, and you will be well-diversified across most sectors of the REIT arena.
In 2021, the ETF returned 21%, Its expense ratio charged by iShares on this REIT is 0.40% and comes with a tracking difference of -0.11%.
The fund has a UCITS risk factor of 5, where 1 is the lowest and 7 is the highest risk. It has a good MSCI ESG Quality Score (environmental, social, and governance) of 6.8, with 10 being the highest score available. Dividends – which will cover your share of rental payments are distributed quarterly as required by law.
You can buy this fund through your ISA (Individual savings account) and SIPP (Self-invested Personal Pension) account.
The top five holdings are:
1. Segro REIT
2. Land Securities REIT
3. British Land REIT
4. Unite Group
5. Derwent London REIT
2. Xtrackers FTSE EPRA/NAREIT Developed Europe ex UK Real Estate UCITS ETF (XREA)
This particular REIT is invested in Europe excluding the UK, and it is a great REIT because it reinvests its dividends back into the business and allows you to invest in wider Europe. So if you have invested in the UK through the i-shares ETF, you can then invest in the rest of Europe with this particular ETF.
The net asset value is £5 million, so this is a small fund. This fund also brings an element of forex hedging to your portfolio because around 70% of its assets are denominated in euros. So when the UK fund is doing well, you have the i-shares for that, and when the Europe fund is doing well, you have the XREA for that.
The best European fund provides diverse exposure to European stocks in the real estate sector (excluding the UK) by investing in eligible listed real estate companies and REITs.
XREA tracks the performance of the FTSE EPRA/NAREIT Developed Europe Ex UK Capped Net Return Index, and it provides physical exposure to the underlying assets of the index.
In 2021,it returned 26.5% and year to date returned 2.5%. Its expense ratio is 0.33% and tracking difference is 0.31%.
It is invested in countries like Germany (29%), Sweden (19%), France (15%), and Switzerland (9%). Instead of distributing them to investors, this ETF reinvests dividends and trades on the Deutsche Borse stock exchange.
Dividend Yield: 3.52%
The top 5 holdings are:
1. Vonovia SE10.14%
2. Deutsche Wohnen 9.09%
3. Leg Immobilien N AG 5.51%
4. WFD UnibailRodamco Stapled Units 5.26%
5. Aroundtown Property Holdings SA 4.48%
3. iShares MSCI Target UK Real Estate ETF (UKRE)
This is a great ETF because it includes government bond exposure, and it is perfect for people who would love to play a bit safe.
This fund has net assets of £73 million and invests entirely in the UK with targeted exposure to liquid real estate and government bonds. UKRE is eligible for inclusion in ISAs and SIPPs and ethical investors with a 6.29 ESG rating.
Unlike other UK REIT ETF funds, UKRE’s inclusion of UK gilts introduces a diversifying factor to the ETF that other ETFs do not have. Average on-loan securities as a percentage of the assets under management in 2020 were 2.95%. The ETF trades on the London Stock Exchange.
It tracks the performance of the MSCI UK IMI Liquid Real Estate Net Total Return Index; and provides physical exposure to the underlying assets of the index. It is 100% invested in the UK, and the asset class is 64.3% invested in REITs and 34.9% invested in UK government bonds.
Over the past 12 months, it has returned 12.4% and to date returned 4.1%. Its returns might be a bit low because it is invested in government bonds. Government bonds usually bring fewer returns than equity, stocks, or REITs.
Its expense ratio is 0.40%, and the tracking difference is -0.30%. This ETF distributes dividends to provide an income stream for its investors.
Dividend Yield: 1.03%
The top 5 holdings are
1. UK I/L Gilt 29.30%
2. Segro REIT 12.78%
3. Primary Health Properties REIT 6.25%
4. United Kingdom (Government of) 5.62%
5. Tritax Big Box REIT 5.56%
4. iShares Asia Property Yield UCITS ETF (IDAR)
This is a great ETF for Asia that provides exposure to developed Asian real estate companies and REITs with its focus on income, but with the proviso that the holdings must have a one-year forecast dividend yield of 2% or greater.
It is a medium-sized ETF with net assets of $535 million, 40% invested in the Japanese market, 24% in Hong Kong, and 15% each in Australia and Singapore.
The average on-loan figure is high at 20%, and the fund is expensive for a REIT ETF with an expense ratio of 0.59%, but if you are keen on having real estate in Asia, this is a good fund to buy.
The reason for the high expense ratio of this particular fund is because it accounts for costs associated with investing in countries requiring some currency risk hedging.
IDAR tracks the performance of the FTSE EPRA/NAREIT Developed Asia Dividend+ Net Total Return index. The ETF provides physical exposure to the underlying assets of the index.
Over the past 12 months, it has returned 28% and the year to date returned 7.8%. Its expense ratio is 0.59%, and the tracking difference is -0.67%. Similar to other ETFs, this one provides dividends to its investors.
Dividend Yield: 2.81%
The top holdings are
1. Mitsui Fudosan 5.57%
2. Link Real Estate Investment Trust %
3. Sun Hung Kai Properties 5.25%
4. CK Asset Holdings 3.50%
5. Scentre Group 3.30%
5. HSBC FTSE EPRA Developed UCITS ETF (HPRD)
This REIT ETF is a great global ETF to invest in because it invests globally, with half in the US. Fund size is small at £137 million, and dividends are distributed quarterly. It has a UCITS risk Indicator reading of 5, with 7 being the highest.
This ETF can invest up to 10% of its funds in other funds, including HSBC funds. During exceptional market conditions, it can invest up to 35% of asset value in the securities of a single issuer.
Both of these objectives provide flexibility to make this fund an all-weather contender. It is set up to allow itself to benefit from whatever economic condition we are in.
It tracks the performance of the FTSE EPRA/NAREIT Developed Net Total Return Index. The ETF provides physical exposure to the underlying assets of the index.
Assets under management stand at €159 million.
Over the past 12 months, it has returned 34.4% and year to date returned 11.2%. This is why this REIT ETF is a big favourite for me. It has historically good performance.
The largest country weightings are the US (51%), Japan (11.4%), Germany (5.5%), Hong Kong (5.1%), and the UK (4.9%). Its expense ratio is 0.40%, and the tracking difference is 0.12%. This ETF distributes dividends to provide an income stream for its investors.
Dividend Yield 2.38%
Top holdings are:
1. Prologis REIT 4.67%
2. Vonovia 2.67%
5. Digital Realty Trust REIT 2.49%
4. Public Storage REIT 2.23%
6. Simon Property Group REIT 1.74%
6. iShares European Property Yield UCITS ETF (IPRP)
The IPRP which is an Europe excluding UK REIT ETF pick can only invest in REITs with a dividend yield of 2% or greater.
The shares are denominated in euros and carry a UCITS risk score of 6, which is relatively higher. This fund is a medium sized REIT ETF with its investments concentrated in just 65 holdings with a net asset value of €1.76 billion. The fund investment has a bias towards Germany, where 43% of its assets are domiciled.
You can buy this ETF through your ISA and SIPP, as it tracks the performance of the FTSE EPRA/NAREIT Developed Europe Ex UK Dividend+ Net of Tax Total Return Index.
The ETF provides physical exposure to the underlying assets of the index, with assets under management of $1.68 billion. Over the past 12 months, it has returned 23.5%, and the year to date returned 2.7%..
The largest European country weightings for this ETF are Germany (43.4%), France (15.9%), Sweden (13.2%), Switzerland (8.7%), and Belgium (8.4%).
Its expense ratio is 0.40%, and a tracking difference is 0.30%. This ETF provides an income stream for its investors with a dividend yield of about 2%.
Dividend Yield 2.71%
Top 5 holdings:
1. Vonovia 21.02%
2. Deutsche Wohnen 9.41%
3. Leg Immobilien 5.70%
4. WFD UnibailRodamco Stapled Units 5.44%
5. Gecina REIT SA 4.06%
You now have six ETFs you can be investing in.
This post is not financial advice but should serve as a guide to shed light on areas you may want to have conversations with your financial advisors.
Till next time.
With love,
Ronke O.
