5 Surprising Facts About REIT ETFs Every Investor Should Know | Global News Avenue

A senior Morgan Stanley manager once told Harm Meijer, author of 2025: “You can’t wipe the dirt off.” Real Estate Rules: An Investor’s Guide to Picking Winners and Avoiding Losers in Listed Propertieswhen he asked him for his best real estate advice. He said the lesson could help those investing in real estate investment trust (REIT) exchange-traded funds (ETFs).

“With REITs, you can just click your mouse and buy these stocks, and that’s it,” Mayer noted. However, this oversimplified view can lead to costly mistakes. To help you avoid other such mistakes, we’re taking you through five surprising facts about REIT ETFs that many investors overlook.

5 surprising facts about REIT ETFs

Real Estate Investment Trust ETFs Allows you to invest in diversified companies that own and manage income-producing properties from offices to data centers. These funds trade like stocks and typically provide steady dividend income because REITs must distribute the majority of their profits to shareholders.

1. REITs tend to outperform the S&P 500 over the long term

Although real estate investment trusts (REITs) have historically grown faster than S&P 500 Index (25- and 50-year returns are better than the stock market), but they have struggled relatively over the past decade, hit hard by the pandemic and rising interest rates.

However, not all REIT ETFs are created equal. Specialty industries such as self-storage (10.9% growth in 2024) and data centers (15.8% growth) have shown greater resilience than other industries. “You have to have the right type of assets,” Major said. These are typically “in areas where supply is limited.”

REIT ETFs help you navigate these industry differences by offering broad exposure across real estate types. Below, you can see REIT returns for specific sectors, which gives you an idea of ​​the returns for ETFs that hold REITs that invest in those sectors.

2. REIT ETFs stand out for their tax efficiency

Investing in REIT ETFs is better than owning individual REITs directly or physical real estate. Because REIT ETFs are structured as pass-through entities, they avoid double taxation at the corporate level, allowing the majority of their income to be distributed to you as dividends.

3. Many REIT ETFs are “top-heavy”

Another interesting aspect of REIT ETFs is their “top-heavy” structure, where a handful of large REITs dominate a portfolio’s holdings. For example, major players such as American Tower Corp. (Active MT) and GLP (programmable logic device) typically account for a large portion of these funds. This could mean that your returns depend heavily on the performance of these few large companies.

4. Smart beta strategies are increasingly popular among REIT ETFs

A little-known fact about REIT ETFs is that they use “smart beta“Strategies that go beyond traditional market capitalization weighting. Rather than simply tracking an index based on market capitalization, these funds measure their holdings based on dividend yield, financial health, or growth potential.

This approach typically reduces risk by focusing on those features that have historically led to better performance.

5. REIT ETFs cover unexpected real estate sectors

Mayer said one mistake he often sees is investors following conventional wisdom. “For example, people tell you the current office is terrible,” he said, but he believes the right approach often uncovers big prospects in areas that other investors may shy away from.

The same goes for new industries where you can invest your money. Today’s REIT ETFs don’t just own shopping malls and apartment buildings, they also invest in data centers that power cloud computing, networks of cell towers that connect cell phones, and lucrative self-storage facilities. For example, healthcare REITs will rise 33% by 2024, while specialty REITs will rise more than 50%, showing how these emerging industries are changing the real estate landscape.

bottom line

While these funds make real estate investing as easy as buying stocks, smart investors know to look behind the scenes. For investors looking to add real estate to their portfolio, without becoming a landlord or putting money into a REIT, REIT ETFs offer an attractive option. However, as with any investment, Mayer said, “you have to do your homework.”