Complete Guide to Canadian REIT ETFs

Canadian REIT ETFs

A real estate investment trust (REIT) invests in real estate properties like apartments, offices, data centers, health care facilities, hotels, shopping malls, and public storage. A REIT ETF provides attractive investment attributes of real estate investment as it invests in several property-owning real estate companies in one go. It reduces the risk for an investor who is betting on just one property of his own. REIT ETFs also grant a good diversification option to investors.

While investing directly in real estate might sound lucrative, it involves a lot of research and is both time and capital intensive. Moreover, a bad choice could lead to all that hard-earned money going down the drain. A REIT ETF, on the other hand, offers a low-cost way to invest in the real estate asset class. Not only that, ETFs are highly liquid in nature and trade as normal stocks on the stock exchange.

Investors invest in REIT not only to gain from a diversified portfolio but also because of their lucrative distribution as REITs are required to pay out at least 90% of their income as distribution (difference between distribution and dividends). There are dozens of REITs to choose from which could further confuse an investor. Some REITs are focused while others are diversified (by asset class, investment objective or geographies). Since REITs are tied to a particular property class, a REIT ETF can offer a balanced investment option to investors. Many real estate investors, therefore, prefer to invest through an exchange traded fund for their low cost, convenience, and diversification.

Which REIT ETF Is Good For You

An investment through an ETF grants investors the ownership in dozens of REITs through a single investment and that too at a reasonable price. Once an investor decides to invest through ETFs, he needs to find out the characteristics that make a good REIT ETF for him. For example, whether you need an equity REIT or mortgage REIT or a combination of both. Few other things that investors can pay heed to are the expense ratio, returns, and assets under management of an ETF. Investors should try and strike a balance between higher return and lower expense ratio.

REIT ETFs Summary

Here is the list of the most prominent REIT ETFs available.

wdt_IDETFYieldFeesMER
1ZRE4.480.550.61
2VRE3.460.350.39
3XRE4.260.550.61
6CGR2.190.650.71
8RIT4.430.750.90
9PHR4.470.650.78

Industry Allocation By REIT ETF

In case you really want to avoid a certain industry, below is the breakdown by industry.

wdt_IDIndustryVREXREZRERITCGRPHR
1Industrial & Office32.2021.3121.3023.1021.1815.38
2HealthCare0.002.2215.406.605.565.85
3Diversified8.8022.3920.0016.5014.803.87
6Specialized0.000.000.000.0015.7215.77
8Retail20.3029.0721.4014.8018.4526.92
9Residential21.3024.8921.5028.9011.1917.77

All Canadian REIT ETFs have a high weightage of Industrial, Residential and Retail industries, as these industries generally have larger real estate requirements. The other prominent industries are Diversified, Healthcare and Specialized.

The above table shows that Vanguard FTSE Canadian Capped REIT Index ETF TSE:VRE, iShares S&P/TSX Capped REIT Index ETF TSE:XRE, BMO Equal Weight REITS Index ETF TSE:ZRE and Purpose Duration Hedged Real Estate Fund TSE:PHR) have the highest allocation to industrial, residential and retail REITs.

Is that the exposure you are looking for? If not, the table can help you assess the exposure that works for you. Below is a quick synopsis on the 6 REIT ETFs with the Top 10 Holdings for each. You can discover what they have in common and help you choose to either invest in the REIT ETF or hold the REIT directly.

VRE – Vanguard FTSE Canadian Capped REIT Index ETF

Vanguard FTSE Canadian Capped REIT Index ETF seeks to track the performance of FTSE Canada All Cap Real Estate Capped 25% Index. The index primarily invests in the Canadian real estate stocks and each constituents’ weight in the index is capped at 25%. The REITs held are primarily in the industrial, office, residential and retail sectors.

Top 10 Holdings:

  1. RioCan REIT (12.9%)
  2. Canadian Apartment Properties REIT (11.4%)
  3. H&R REIT (10.6%)
  4. Allied Properties REIT (8.4%)
  5. SmartCentres REIT (6.8%)
  6. FirstService Corp. (6.3%)
  7. First Capital Realty Inc. (5.5%)
  8. Colliers International Group Inc. (5.5%)
  9. Chartwell Retirement Residences (5.2%)
  10. Choice Properties REIT (5.1%)

XRE – iShares S&P/TSX Capped REIT Index ETF

iShares S&P/TSX Capped REIT Index ETF replicates the performance of the S&P/TSX Capped REIT Index, net of expenses. The ETF’s investment objective is to seek long term growth. It provides a balanced exposure to retail, residential, office and industrial REITs and has monthly distributions. The ETF was founded in 2002 and is one of the oldest. This ETF carries a risk rating of medium. iShares S&P/TSX Capped REIT Index ETF is ideal for investors looking for long-term capital growth as well as a regular stream of monthly income.

Top 10 Holdings:

  1. RioCan REIT (13.52%)
  2. Canadian Apartment Properties REIT (13.42%)
  3. H&R REIT (11.17%)
  4. Allied Properties REIT (9.55%)
  5. SmartCentres REIT (7.13%)
  6. Choice Properties REIT (6.05%)
  7. Granite REIT (5.23%)
  8. Dream Global REIT (4.7%)
  9. Cominar REIT (3.93%)
  10. Killam Apartment REIT Unit Class (3.06%)

ZRE – BMO Equal Weight REITS Index ETF

BMO Equal Weight REITs Index ETF replicates the performance of the Solactive Equal Weight Canada REIT, which consists of the Canadian securities falling within the Real Estate Investment Trust sector.

Top 10 Holdings:

  1. Summit Industrial Income REIT (5.11%)
  2. Dream Industrial REIT (4.83%)
  3. Crombie REIT (4.78%)
  4. NorthWest Healthcare Properties (4.78%)
  5. Killam Apartment REIT (4.74%)
  6. Artis REIT (4.66%)
  7. Cominar REIT (4.64%)
  8. CT REIT (4.59%)
  9. Chartwell Retirement Residence (4.57%)
  10. Dream Global REIT (4.54%)

RIT – First Asset Canadian REIT Income Fund

First Asset Canadian REIT Income Fund is an actively managed fund. It primarily invests in REIT stocks, real estate operating corporations and corporations involved in real estate related services. The fund may also invest up to 30% of its net asset value in non-real estate related securities and services. It has monthly distribution policy. The fund’s objective is to seek total returns consisting of regular income and long-term capital appreciation. First Asset Investment Management Inc. has rated the volatility of this ETF as low to medium.

Top 10 Holdings:

  1. Canadian Apartment Properties REIT (4.76%)
  2. Killam Apartment REIT (4.59%)
  3. Interrent REIT (4.38%)
  4. Dream Industrial REIT (4.31%)
  5. First Capital Realty Inc. (4.23%)
  6. Pure Multi Family REIT LP (4.17%)
  7. Morguard North American REIT (4.08%)
  8. Allied Properties REIT (4.06%)
  9. RioCan REIT (4.05%)
  10. Choice Properties REIT (3.65%)

CGR – iShare Global Real Estate Index ETF

iShare Global Real Estate Index ETF replicate the performance of the Cohen & Steers Global Realty Majors Index, net of expenses. The ETF provides exposure to 75 publicly-traded global real estate companies and a global exposure to countries such as the US (55%), Japan (10%), Hong Kong (9%), Australia (6%), Germany (5%), France, UK, China, Singapore, Canada and others. The ETF aims to provide long-term capital growth and global exposure to real estate companies to investors. It offers quarterly distributions.

Top 10 Holdings:

  1. American Tower REIT (4.25%)
  2. Equinix REIT (4.2%)
  3. Prologis REIT (4.19%)
  4. Public Storage REIT (3.63%)
  5. Simon Property Group REIT (3.43%)
  6. Well Tower Inc (3.2%)
  7. Equity Residential REIT (2.83%)
  8. Avalonbay Communities REIT (2.83%)
  9. Sun Hung Kai Properties Ltd. (2.59%)
  10. LINK REIT (2.58%)

PHR – Purpose Duration Hedged Real Estate Fund

Purpose Duration Hedged Real Estate Fund seeks to provide its shareholders long-term capital appreciation by investing in a portfolio of real estate. This ETF offers exposure to a broad portfolio of Canadian (48% of portfolio) and US (48% of portfolio) real estate equities. The fund hedges its portfolio’s interest rate exposure in order to reduce the portfolio’s sensitivity to rising interest rates. It provides monthly distributions. Purpose Investments Inc. has rated the volatility of this ETF as medium.

Top 10 Holdings:

  1. Canadian Apartment Properties REIT (6.21%)
  2. RioCan REIT (6.14%)
  3. American Tower Corp (5.75%)
  4. H&R REIT (5.09%)
  5. Choice Properties REIT (4.92%)
  6. Allied Properties REIT (3.95%)
  7. SmartCentres REIT (3.92%)
  8. Simon Property Group Inc (3.66%)
  9. Crown Castle International Corp (3.45%)
  10. Prologis Inc (3.1%)

 

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