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Is the Vanguard REIT Fund the Best of the Bunch?

Aug 28, 2019 by Matt Frankel, CFP
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Vanguard is well known for its low-cost index funds. And it offers two varieties of its real-estate-investment-trust-focused index fund. Here’s what you need to know about it and how it compares with other real estate index funds in the market.

What is the Vanguard REIT fund?

The Vanguard REIT fund comes in two varieties -- a mutual fund and an exchange-traded fund, or ETF. Both have the same expense ratio of 0.12% -- this means that for every $10,000 you have invested in the fund, you’ll pay $12 in annual expenses to Vanguard.

The mutual fund version is the Vanguard Real Estate Index Fund Admiral Shares (NASDAQMUTFUND: VGSLX). This has a $3,000 minimum investment.

The Vanguard Real Estate ETF (NYSEMKT: VNQ) has no minimum investment. You can invest in it by purchasing one share, which is priced at approximately $87 as of July 1, 2019.

Between the two versions, there's $63.4 billion invested in the fund, which owns shares of 190 different real estate stocks. It’s also important to mention that the fund is market-cap-weighted, meaning that larger REITs make up a larger portion of the fund’s assets. Top holdings include American Tower, Crown Castle, Simon Property Group, and Prologis.

Alternative REIT funds to consider

The Vanguard REIT fund is the largest of its kind by a wide margin. And I'd call it the best of the similar REIT ETFs and mutual funds. It has a low expense ratio and provides broad exposure to the real estate sector.

The Vanguard REIT fund is the largest of its kind by a wide margin. And I'd call it the best of the similar REIT ETFs and mutual funds. It has a low expense ratio and provides broad exposure to the real estate sector.

But there are a couple of funds with different investment objectives you might want to consider as well.

The Schwab U.S. REIT ETF (NYSEMKT: SCHH) has about $5 billion in assets and, like the Vanguard fund, tracks a weighted index of REITs. It actually has a lower expense ratio -- just 0.07%.

The key difference is that the Schwab fund excludes communications REITs like American Tower. Some experts feel that these would be more appropriately classified as telecommunications stocks, not REITs. The two largest publicly traded REITs are both telecom REITs, so this makes a big difference in the investment dynamics of a weighted index fund.

If you’re looking for exposure to real estate that extends beyond the U.S., the iShares Global REIT ETF (NYSEMKT: REET) could be right for you. It takes a similar approach to the Schwab ETF in terms of excluding telecom REITs, but it also includes some foreign REITs. With a 0.14% expense ratio, you’re not paying too much more for the added diversification.

Is the Vanguard REIT Fund the best option?

Either version of the Vanguard REIT fund can be a great choice for investors who want to invest in REITs. Both funds add portfolio diversification as well as the excellent dividends and growth potential. And they don't require the research or risk involved in choosing individual stocks.

But is the Vanguard fund the best? That depends on your investment goals and risk tolerance.

There are good arguments for the other two funds I mentioned. But if you're okay with telecommunications REITs and don’t care about international real estate exposure, the Vanguard REIT fund could be the best fund for you.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Vanguard REIT ETF. The Motley Fool has a disclosure policy.