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The Best Canadian REIT ETFs for 2024: A Comprehensive Guide

CEO Khai Intela
Investing in real estate can be a lucrative endeavor, but it often requires a significant amount of research and capital. Thankfully, there's a simpler way for Canadians to tap into the real estate market without...

Investing in real estate can be a lucrative endeavor, but it often requires a significant amount of research and capital. Thankfully, there's a simpler way for Canadians to tap into the real estate market without all the hassle. Enter Real Estate Investment Trust (REIT) ETFs, the easy and efficient way to invest in real estate without becoming a landlord or spending hours researching individual REITs.

In this article, we'll explore everything you need to know about REIT ETFs, including how they diversify your portfolio, how they differ from traditional REITs, how to recognize good REIT ETFs, and our top picks for 2024.

Top REIT ETFs in Canada: Quick Comparison

Let's start with a quick comparison of the top REIT ETFs available in Canada:

REIT ETFs Caption: A comparison of the top REIT ETFs in Canada.

What are REIT ETFs and Why Invest in Them?

If you're familiar with exchange-traded funds (ETFs), you'll find REIT ETFs to be a straightforward investment tool. Similar to mutual funds, ETFs are investment products consisting of a portfolio of assets designed to track the performance of a specific index. REIT ETFs, in particular, are tied to the real estate trust market, allowing investors to access a diversified portfolio of REITs without the need for individual purchases.

Diversification is a key benefit of REIT ETFs. By investing in a single REIT ETF, you instantly gain exposure to various real estate sectors, such as industrial, retail, residential, and healthcare. This diversification enhances your investment stability and minimizes the impact of sector-specific downturns.

REITs vs. REIT ETFs

While traditional REITs focus on specific real estate sectors, REIT ETFs provide investors with an opportunity to diversify across multiple sectors. This means that instead of investing solely in a residential REIT, for example, you can invest in a REIT ETF that includes industrial, retail, residential, and healthcare real estate. By doing so, you protect your investment from the volatility of a single sector.

However, it's important to note that REIT ETFs come with slightly higher management fees compared to individual REITs. Additionally, some REIT ETFs may be heavily weighted towards a few top REITs. If you prefer more control and are willing to perform individual research, investing directly in specific REITs might be a better option for you.

What Makes a Good REIT ETF?

When evaluating REIT ETFs in Canada, consider the following factors to determine if an ETF is worthwhile:

Low Management Fee

Look for REIT ETFs with lower management expense ratios (MERs). While fees vary, lower MERs are generally better, as they ensure that fees don't eat into your investment earnings. However, it's essential to balance the fee with the performance of the ETF.

Diversification

A good REIT ETF should offer diversification in multiple ways:

  • Number of holdings: Look for REIT ETFs with a substantial selection of REITs in their portfolio. The best REIT ETFs in Canada include anywhere from 19 to 30+ REITs.
  • Size of included REITs: An ideal REIT ETF should include a range of REITs, including medium and small companies, not just the largest ones.
  • Balanced asset allocation: A well-balanced REIT ETF should distribute its asset allocation evenly across its holdings. Avoid ETFs where a single or pair of REITs dominate the portfolio.
  • Multiple real estate sectors: Opt for a REIT ETF that includes a variety of sectors to maximize diversification. The more diversified the sectors, the less severe the impact of a sector crash.

Liquidity

Consider the average trading volume of a REIT ETF to ensure active trading. Higher trading volumes indicate better liquidity, allowing you to buy and sell shares more easily when needed. The top REIT ETFs in Canada generally have average trading volumes in the thousands.

Stable Management and Long Track Record

Choose REIT ETFs from established companies with reputable track records. Look for stable management and trusted ETF providers to ensure your investment is in capable hands.

Are REIT ETFs Worth the Fees You Pay?

The value of REIT ETFs ultimately depends on your investment goals and preferences. However, for long-term passive investing, REIT ETFs offer several advantages. They provide greater diversification compared to single REITs, and their MERs are generally lower than those of traditional mutual funds. Historically, REITs and REIT ETFs have outperformed direct real estate investing, making them an attractive option for investors seeking exposure to the real estate market.

It's worth noting that REITs, REIT ETFs, and real estate, in general, are not ideal for short-term investing due to market fluctuations. For short-term investments, consider exploring other options such as the Top Short-Term Investments in Canada.

What Are the Best Canadian REIT ETFs to Buy Right Now?

After thorough evaluation, we have identified four top-recommended REIT ETFs for Canadian investors in 2024. These ETFs come from well-established companies with excellent track records and offer various features to suit your investment needs. Let's take a closer look at each one:

Vanguard FTSE Canadian Capped REIT ETF (VRE)

  • Ticker: VRE
  • AUM: $335.05M CDN
  • MER: 0.38%
  • Average volume: 9,070
  • Annualized Distribution Yield: 4.18%
  • Dividend Schedule: Monthly

The Vanguard FTSE Canadian Capped REIT ETF stands out with its low management fees, making it an attractive option. While it has a smaller number of holdings (19), it specializes in medium to small-cap REITs across various sectors such as retail, industrial, residential, commercial, and healthcare. VRE offers sufficient liquidity, with an average trading volume of over 9,000 shares daily.

BMO Equal Weight REITs Index ETF (ZRE)

  • Ticker: ZRE
  • AUM: $654.21M CDN
  • MER: 0.61%
  • Average volume: 16,747
  • Annualized Distribution Yield: 4.56%
  • Dividend Schedule: Monthly

BMO's Equal Weight REITs Index ETF aims to replicate the performance of the Solactive Equal Weight Canada REIT Index. It provides equal exposure to 23 of Canada's top real estate investment trusts, covering residential, retail, and industrial properties. The equal weighting strategy reduces the impact of individual holdings' performance on the ETF's overall value. ZRE's management fee of 0.61% is relatively average for REIT ETFs, offering a cost-effective alternative to mutual funds.

iShares' S&P/TSX Capped REIT ETF (XRE)

  • Ticker: XRE
  • AUM: $1,127M CDN
  • MER: 0.61%
  • Average volume: 476,995
  • Annualized Distribution Yield: 4.46%
  • Dividend Schedule: Monthly

Blackrock's iShares' S&P/TSX Capped REIT ETF is the oldest and largest REIT ETF on our list. With over a billion dollars in assets under management and an average trading volume of almost half a million shares, XRE offers ample liquidity. The ETF covers a mix of residential, retail, office, industrial, and healthcare properties. While slightly top-heavy, with only 17 holdings and the top two holdings accounting for a significant portion of the portfolio, XRE maintains a solid track record of consistent dividends and long-term capital growth.

CI Canadian REIT ETF (RIT)

  • Ticker: RIT
  • AUM: $642.59M CDN
  • MER: 0.87%
  • Average volume: 13,845
  • Annualized Distribution Yield: 4.59%
  • Dividend Schedule: Monthly

CI Canadian REIT ETF (formerly known as CI Canadian First Asset REIT ETF) has the highest management fee among the listed REIT ETFs, at 0.87%. However, it compensates for the fee with its active management strategy. RIT offers a well-diversified portfolio with 39 different real estate holdings, covering industrial, residential, commercial, and healthcare REITs. Despite the higher fee, RIT has a strong performance history, with an average trading volume of over 13,000 trades daily and a dividend yield consistently around 4-5%.

Canadian REIT ETFs - FAQ

Should Canadians Invest in REIT ETFs?

Investing in Canadian REIT ETFs is an excellent way to diversify your portfolio and gain exposure to the real estate market. These ETFs offer balanced investments with low MERs and have track records of stable performance. However, if you prefer a more hands-on approach and are willing to conduct your own research and rebalancing, individual REITs might be more suitable.

When investing in REITs or REIT ETFs, consider using our top recommended brokers, such as Qtrade or Questrade, for seamless and cost-effective trading experiences.

Invest wisely and enjoy the benefits of real estate in your investment portfolio!

Disclaimer: This article is for informational purposes only. Always conduct thorough research and consult with a financial advisor before making any investment decisions.

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