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 around the world.
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 on a monthly basis 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 2022.
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 is less work 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.
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 back in November of 2012. Vanguard is one of the most trusted names in the ETF industry.
VRE has 100% of its holdings in Canadian-based REITs, with 16 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 is no exception. The management fee sits at 0.35% and the MER sits at 0.38%. 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 96% since its inception. This averages out to about 9.6% per year.
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 just 3.12% which does trail some of its industry peers.
2. iShares S&P/TSX Capped REIT Index ETF (XRE)
Like Vanguard, iShares from Blackrock is another leading ETF provider. It’s XRE ETF trades on the Toronto Stock Exchange and has a very similar composition to Vanguard’s VRE.
XRE was established in October of 2002 and has performed superbly since its inception. XRE has a cumulative gain of about 512% since its inception, good for about a 9.8% 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, with fewer holdings.
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%,
XRE does offer a slightly higher distribution yield at 3.28% and as with most REIT ETFs, it pays its distributions on a monthly basis.
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 260% since its inception. On an average annual basis, this equates to approximately 11.5% 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:
ZRE 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 offers one of the higher distribution yields for Canadian REIT ETFs with an annual yield of 3.81% paid out on a monthly basis.
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 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 a 10.9% 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.
RIT does have a higher distribution yield of 3.91% that it pays out on a monthly basis. Long-term investors should note that any increase in dividend is offset by higher MER fees.
5. Purpose Real Estate Income Fund (PHR)
PHR is our first currency-hedged Canadian REIT ETF. This means that since the REIT holds American assets as well, there are both Canadian and US currencies to offset any fluctuations in currency value.
PHR was established back in 2014 and has had a steady but rather unspectacular performance. On an average annual basis, the ETF has returned about 6.9% since inception, which lags behind the other ETFs in this article.
Here is a breakdown of the top ten holdings by weight in PHR:
And here is the sector and geographic breakdown of PHR:
As you can see, PHR focuses on high-quality real estate assets, especially industrial assets like storage vaults and recurring residential revenue with seniors facilities.
PHR also has higher annual fees attached to it as its management fee sits at 0.65% and its MER is a hefty 0.79%.
In terms of distributions, PHR abides by the industry standard of monthly payments with an annualized yield of 3.50%.
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 75 different holdings of REITs based around the world.
CGR was established back in 2008 and trades on the Toronto Stock Exchange. Since its inception, CGR has returned an average annual gain of about 6.3%.
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 2.11%.
7. Harvest Global REIT Leaders Income ETF (HGR)
HGR is yet another global REIT ETF that trades on the Toronto Stock Exchange. It offers investors exposure to international real estate markets without any foreign exchange fees.
In terms of performance, HGR hasn’t had the best track record so far. Since its inception, it has had an average annual performance of 3.10%, which lags most of these other REIT ETFs.
Here are the 10 largest holdings by weight of the 29 in the fund:
ANd here is the geographical and sector distribution of the holdings:
HGR has a 0.85% management fee, making it one of the more expensive REIT ETFs to own. It has a higher distribution yield of 6.26% and pays it out on a monthly basis.
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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
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.
You’ll probably notice that REITs in general 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.
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 a variety of different 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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