Two of the most widely held real estate exchange-traded funds offer different tradeoffs for investors, and the differences go beyond just the number of stocks inside each fund.
The choice between the State Street Real Estate Select Sector SPDR ETF, ticker XLRE, and the Vanguard Real Estate ETF, ticker VNQ, comes down to whether an investor prefers a concentrated, low-cost portfolio focused on S&P 500 companies or broader market exposure with a higher dividend yield, according to an analysis published by Yahoo Finance.
On cost, XLRE has the edge. It carries an expense ratio of 0.08%, which is lower than VNQ's ratio. But VNQ currently offers a yield gap of 0.4 percentage points, giving income-focused investors a higher payout.
The two funds differ sharply in how many positions they hold. VNQ holds 145 positions, while XLRE holds only 31. VNQ launched in 2004 and posted a trailing-12-month dividend of $3.49 per share. XLRE launched in 2015 and posted a trailing-12-month dividend of $1.40 per share.
Despite those differences, the two funds share the same top holdings. Welltower is the largest position in both, at 7.7% in VNQ and 9.9% in XLRE. Prologis is second in both, at 7.2% and 9% respectively. Equinix rounds out the top three at 5.6% in VNQ and 7.4% in XLRE. That overlap has driven similar returns over the last few years.
Over the last year, as of June 12, VNQ's price gained 8.6%. On a total return basis, which includes reinvested dividends, that figure jumps to nearly 13%.
The concentration in XLRE presents a specific type of risk. With around 30 holdings, the fund is less diversified by position count. However, each holding represents a real estate company that itself holds a large portfolio of properties, not a single asset. VNQ's 145 positions spread that exposure further across the investable domestic real estate market.
VNQ's large assets under management also make it highly liquid, which matters for investors who may need to move in and out of a position. Income investors who reinvest dividends automatically benefit from compounding on top of the fund's broader diversification.
Both funds are traditional equity ETFs built for liquid exposure to large-cap REITs. Neither carries complex structural features that would require additional scrutiny. The decision between them is primarily one of cost versus yield and concentration versus breadth.
