When it comes to cash flow to your portfolio, it’s hard to beat the regular distributions of REITs or Real Estate Investment Trusts.
These assets trade on the Toronto Stock Exchange but provide instant exposure to physical real estate assets worldwide.
A REIT pays 90% of its taxable income out to its shareholders in the form of a distribution or dividend. Most REITs will pay this out every month as it collects rental income from their tenants.
Are you finding it difficult to narrow down which REIT to invest in? Most REITs have a specific focus area within their portfolio, whether it is residential, commercial, or even retail.
There are various benefits to investing in a REIT ETF. These investment vehicles combine the automatic cash flow of a REIT with the instant diversification and stability of an ETF.
REIT ETFs take the best Canadian REITs for income and allow Canadian investors to hold them through a single investment.
Read on to learn about some of the best REIT ETFs in Canada for 2023.
What is a REIT ETF?
A REIT ETF is exactly as it sounds: a fund that holds multiple different REIT stocks in a single investable asset.
As with other ETFs, a REIT ETF reduces the risk of an investor being exposed to a single REIT and requires less work and capital than buying physical real estate and renting it out.
When investing in ETFs, it’s important to note two different models that are used:
- ETFs that invest directly into stocks or assets
- ETFs that invest in other ETFs
If you want to gain exposure to Canadian REITs, it’s important to check out the holdings of the REIT ETF you are researching.
Best REIT ETFs in Canada
Let’s take a look at our list of Canadian REIT ETFs to add to your watchlist.
1. Vanguard FTSE Canadian Capped REIT Index ETF (VRE)
VRE is an ETF from Vanguard Canada that was established in November 2012. Vanguard is one of the most trusted names in the ETF industry.
This fund has 100% of its holdings in Canadian-based REITs, with 17 different assets in the fund. It holds a nice diverse and equally weighted exposure to residential REITs, retail REITs, and office REITs.
Here is a look at the top ten holdings in VRE:
And here is the sector breakdown of VRE:
Vanguard is well known for its low management fees, and VRE.TO is no exception. The management fee is 0.35%, and the MER sits at 0.39%. This makes investing in VRE very affordable and much cheaper than other investments like mutual funds.
The Vanguard REIT ETF has had a solid annual average return and has returned a cumulative of about 74% since its inception. This equates to about 5.4% on an average annual basis.
Finally, VRE pays out a monthly distribution with a yield that might leave some investors looking for more. The distribution yield is solid but not spectacular at 2.65%, which does trail some of its industry peers. Given that VRE has lost about 10% over the past year, the 12-month trailing yield is elevated at 4.10%.
2. iShares S&P/TSX Capped REIT Index ETF (XRE)
Like Vanguard, iShares from Blackrock is another leading ETF provider. Its XRE ETF trades on the Toronto Stock Exchange and has a very similar composition to Vanguard’s VRE.
XRE.TO was established in October 2002 and has performed superbly since its inception. XRE has had a cumulative gain of about 447.32% since its inception, good for about a 8.63% average annual return.
Here are the holdings of XRE:
And here is the sector exposure breakdown for XRE:
As you can see, it consists of a very similar composition to VRE.TO, with a more concentrated portfolio.
iShares has provided reasonable but higher management fees than Vanguard for this Canadian REIT ETF. The management fee sits at 0.55%, and the MER sits at 0.61%. This means that for every $10,000 invested in XRE.TO, you will pay $61 in fees.
XRE does offer a slightly higher distribution yield at 4.17%, and as with most REIT ETFs, it pays its distributions monthly.
Related: Best Canadian ETFs for Your Portfolio
3. BMO Equal Weight REITs Index ETF (ZRE)
ZRE is one of the best REIT ETFs in Canada. It is managed by the Bank of Montreal’s Global Asset Management division, was established back in May of 2010, and holds a medium risk rating for the sector.
In terms of performance, ZRE has been solid and has returned about 180% since its inception. On an average annual basis, this equates to approximately 8.3% returns every year.
ZRE is a far more diverse REIT ETF than XRE, with 22 different Canadian REIT holdings. Here are the top ten by weight:
And here is the sector breakdown for ZRE:
This REIT ETF has management fees more in line with iShares than Vanguard. It has a management fee of 0.55% and an MER of 0.61% per year.
ZRE.TO offers one of the higher distribution yields for Canadian REIT ETFs, with an annual yield of 4.97% paid out monthly.
4. CI Canadian REIT ETF Fund (RIT)
CI Global Asset Management might not have the same brand power as iShares or Vanguard, but the firm manages some high-performance ETFs.
RIT is one of these high-performing REIT ETFs and has been a steady investment since its inception in 2004. On an average annual return basis, RIT is providing its investors with an average of a 9.3% return each year since its inception.
Unlike the other Canadian REIT ETFs profiled so far, RIT includes both Canadian and US REITs in its holdings. Here are the top 15 holdings in RIT:
And here is the sector breakdown for RIT:
RIT has higher fees than even ZRE and XRE, with a management fee of 0.75% and an MER of 0.87%, making it one of the more expensive funds to own in the Canadian REIT ETF industry.
This fund does have a higher distribution yield of 4.96% that it pays out every month. Long-term investors should note that any increase in dividends is offset by higher MER fees.
5. Horizons Equal Weight Canada REIT Index ETF
The Horizons Equal Weight Canada REIT Index ETF is a newer entry to the Canadian REIT ETF market. It was established in January 2019 and has provided investors with a 5.26% average annual return since its inception.
This fund is designed to track the Solactive Equal Weight REIT Canada Index (Total Return). As of May 2023, the fund has about $53 million in net assets invested.
Here are the top holdings in HCRE.TO:
HCRE.TO has very reasonable management fees with an MER of just 0.33%. The major drawback of HCRE.TO is that it currently does not pay out any distributions or dividends. Since these are one of the primary reasons for investing in REIT ETFs, investors may look past HCRE.TO.
6. iShares Global Real Estate Index ETF (CGR)
CGR is one of the broadest and most diverse REIT ETFs in Canada. It is a global fund with 77 different holdings of REITs based around the world.
This iShares REIT ETF was established back in 2008 and trades on the Toronto Stock Exchange. Since its inception, CGR has returned an average annual gain of about 5.0%.
Here are the top ten holdings by weight for CGR:
Here is the geographical breakdown for CGR:
There are some major REIT names in this fund, including data center REIT, Equinix, and major retail REIT Simon Property Group.
iShares has some fairly high fees again for CGR, especially compared to Vanguard. CGR has a management fee of 0.65% and an MER of 0.72%.
Distributions for CGR are paid out quarterly rather than monthly, with an annualized yield of 2.39%.
Related: Best Monthly Dividend Stocks in Canada
7. Harvest Global REIT Leaders Income ETF (HGR)
HGR.TO is yet another global REIT ETF that trades on the Toronto Stock Exchange. It offers investors exposure to international real estate markets without having to pay any foreign exchange fees.
In terms of performance, HGR hasn’t had the best track record so far. Since inception, it has had an average annual return of a loss of (1.29%) which lags behind most of these other REIT ETFs.
Here are the 10 largest holdings by weight of the 27 in the fund:
And here is the geographical and sector distribution of the holdings:
HGR.TO has a high 0.85% management fee, making it one of the more expensive REIT ETFs to own. It has a higher distribution yield of 8.84% and pays it out on a monthly basis.
How To Buy the Best Canadian REIT ETFs
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What To Look For in a REIT ETF
Things to look for in a Canadian REIT ETF include:
- Low management fees for long-term gains
- Monthly or Quarterly distributions
- Sector diversification for a safer overall investment
- Look for currency-hedged ETFs if it is an international REIT ETF
Are REIT ETFs a Good Investment?
Yes, they certainly can be. Real estate is a market where assets seem to continue to rise in value over time.
So too do REITs, and many of them offer a nice steady return of about 10%, which does not even include the distribution reinvestment. For steady gains and steady cash flow, REIT ETFs are an excellent way to gain exposure to real estate in your stock portfolio.
Downsides of REIT ETFs
You’ll probably notice that REITs generally do not offer much in terms of company growth. The assets under management will grow, but REITs do not develop as other publicly traded companies do.
In terms of REIT ETFs, the distribution yield is actually often lower than owning the REIT themselves.
The performance is also not as high as you would expect, and sometimes choosing the right individual REITs can have higher returns.
Conclusion
REIT ETFs are a great way to add real estate diversity to your portfolio. As with normal ETFs, a single asset class can provide exposure to various sub-sectors and geographic properties.
They offer stability in your portfolio, especially in times of volatility, and pay out a steady cash flow that you can use to reinvest or re-allocate elsewhere.
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