The Vanguard Real Estate ETF (VNQ -1.29%) is a popular exchange-traded fund (ETF) with net assets of approximately $68.9 billion. The fund is part of The Vanguard Group's collection of ETFs, many of which track the performance of a particular market index. The privately held investment advisory firm is a top asset management company.
ETFs can enable investors to diversify holdings in various assets like stocks while getting automatic exposure to numerous investments. The Vanguard Real Estate ETF was first launched in September 2004.
Rather than purchasing each of the stocks contained in the ETF individually, you can become part owner of all the assets contained in the fund's portfolio with a single purchase of the ETF's shares. If you're interested in the Vanguard Real Estate ETF, here's what you need to know about how to buy shares, the ETF's holdings, its dividend, expense ratio, and more.
Exchange-Traded Fund (ETF)
What is it?
What is the Vanguard Real Estate ETF?
The Vanguard Real Estate ETF aims to track the performance of the MSCI US Investable Market Real Estate 25/50 Index. The index that the ETF tracks is designed to capture the large-, mid- and small-cap segments of the U.S. equity universe, focusing on stocks of companies within the real estate sector.
This ETF provides exposure to a wide variety of publicly traded equity real estate investment trusts (REITs) and other real estate-related investments, including real estate management and development companies.
How to invest
How to buy the Vanguard Real Estate ETF
It's very easy to buy shares of the Vanguard Real Estate ETF. You can buy shares through your preferred brokerage account. Here's a step-by-step guide to buying shares of the ETF.
Step 1: Open your brokerage app
You can buy shares of Vanguard Real Estate ETF through your brokerage account or directly from The Vanguard Group. Log into your brokerage account where you handle your investments. If you don't already have a brokerage account, you'll need to open one. You can buy stocks, bonds, mutual funds, ETFs, and other assets through just about any reputable brokerage.
When choosing your account, think about what elements are important to you and your investment journey. For example, check the security measures that the broker has in place, consider fees that the brokerage charges, and the methods that are available to fund your account. Once you have your brokerage account set up and funded, you're ready to proceed with buying shares of the Vanguard Real Estate ETF.
Step 2: Search for the ETF
Next, you'll want to enter the ticker VNQ. You can also type the full name Vanguard Real Estate ETF in the search bar.
Step 3: Decide how many shares to buy
Before you invest in the Vanguard Real Estate ETF or any other type of investment, you need to determine your budget and how much money you want to allocate to this fund. Ideally, you should be working towards building a diversified portfolio that features 25 or more stocks across various industries and sectors. You should also approach any investment with a minimum buy-and-hold horizon of three to five years.
One of the major benefits of investing in a fund like the Vanguard Real Estate ETF is that you have instant diversification to different companies in the real estate sector. So, if you want to grow your real estate investments or initiate a starter position in this space in your portfolio, you can invest in this ETF and be diversified right away.
Also, be sure that you do your research before you put cash to work. Analyzing an ETF is a bit different than the approach you might have when researching an individual stock. Be sure to take a look at similar funds, their expense ratios, and investment histories. Take the time to research the fund's holdings, performance, and overall investment strategy to ensure it aligns with the overall objectives you've set for your portfolio.
Step 4: Select order type
You'll need to decide whether you want to place a market order or a limit order before you purchase shares of the Vanguard Real Estate ETF. A market order will execute your purchase immediately at the current price, while a limit order will only proceed if shares hit the maximum price that you're willing to pay. A market order is usually recommended over a limit order.
Step 5: Submit your order
Now, confirm the details before you submit your buy order. Ensure you've selected the number of shares you want to buy or the dollar amount you want to invest in the Vanguard Real Estate ETF.
Step 6: Review your purchase
Check your portfolio to ensure your order was filled as expected, and adjust your investment strategy as needed. Many brokerage platforms allow orders to be filled outside of trading hours. However, assuming you've placed a market order during regular trading hours, you should see your order execute immediately.
ETF holdings
Holdings of the Vanguard Real Estate ETF
The Vanguard Real Estate ETF closely tracks the returns of the MSCI US Investable Market Real Estate 25/50 Index. The fund primarily invests in stocks held in REITs, as well as companies that purchase properties like hotels and office buildings. All of the fund's investments are in domestic U.S. real estate holdings, with a healthy mix of both commercial and residential real estate.
The Vanguard Real Estate ETF holds 155 stocks, with the median market capitalization of these investments coming in at $33.3 billion. As of late 2024, the top 10 holdings of this ETF included:
- Vanguard Real Estate II Index Fund Institutional Plus Shares (VRTPX 1.32%): 13.65%
- Prologis Inc. (PLD 0.97%): 5.97%
- American Tower Corp. (AMT -1.26%): 5.69%
- Equinix Inc. (EQIX -2.08%): 4.79%
- Welltower Inc. (WELL -1.41%): 4.50%
- Digital Realty Trust Inc. (DLR -1.18%): 3.30%
- Simon Property Group Inc. (SPG -0.94%): 3.15%
- Public Storage (PSA -1.54%): 2.97%
- Realty Income Corp. (O -1.03%): 2.95%
- Crown Castle International Corp. (CCI -1.61%): 2.66%
The Vanguard Real Estate ETF is extremely well diversified across various REIT sectors as well as other real estate investments like operating companies. The ETF's weighted exposures as of late 2024 were:
- Data center REITs: 9.40%
- Diversified real estate activities: 0.20%
- Diversified REITs: 1.90%
- Healthcare REITs: 11.60%
- Hotel and resort REITs: 2.30%
- Industrial REITs: 10.60%
- Multifamily residential REITs: 8.50%
- Office REITs: 3.50%
- Other specialized REITs: 6.90%
- Real estate development: 0.20%
- Real estate operating companies: 0.10%
- Real estate services: 7.20%
- Retail REITs: 13.40%
- Self-storage REITs: 6.70%
- Single-family residential REITs: 4.10%
- Telecom tower REITs: 11.40%
- Timber REITs: 2.00%
As you can see from the list above, Vanguard Real Estate ETF's three largest sector concentrations were retail REITs, healthcare REITs, and telecom tower REITs. These and other key weightings in the fund's portfolio will have the broadest impact on its performance.
Should you invest?
Should I invest in the Vanguard Real Estate ETF?
Choosing any investment for your portfolio is a very personal choice. You need to ensure that the Vanguard Real Estate ETF aligns with your risk tolerance level, the investment goals you've set for your portfolio, and that you have a general understanding as well as interest in real estate investments.
The Vanguard Real Estate ETF benefits from a weighted index that is very well diversified across numerous forms of real estate assets but composed primarily of equity REITs. This means that rather than investing in riskier instruments like mortgages, the ETF invests in companies that own tangible assets, including both commercial and residential real estate.
Given the headwinds that the real estate industry has been facing over the last few years, including labor shortages, materials shortages, and an increase in short-term interest rates, it's not surprising that this ETF hasn't been a super robust performer. However, it's continued to align with its benchmark index's returns while delivering sustained dividend income. A more tepid performance compared to other benchmarks like the S&P 500 is also one of the factors behind its dividend yield of close to 4%.
While that above-average yield is a short-term benefit that could be a green flag for income-seeking investors looking to diversify in the real estate space, the long-term outlook for the real estate industry as a whole is still extremely favorable. As interest rates slowly decrease and the cost of capital goes down, these will be notable tailwinds for real estate-focused businesses, including the REITs that funds like the Vanguard Real Estate ETF so heavily invest in.
As rates fall, investors also tend to transition to putting cash back into income-centric stocks, which can also be a tailwind for dividend investments like the Vanguard Real Estate ETF. Real estate will continue to be very sensitive to a changing interest rate environment, and the Federal Reserve has indicated it will likely continue to lower rates at a very cautious pace.
Investors with a durable buy-and-hold horizon who want to put cash into real estate may find that a diversified fund like the Vanguard Real Estate ETF looks like a great choice, particularly as conditions continue to become more favorable in this space. For investors who don't quite have the risk appetite for the cyclicality of the real estate space, it may be better to proceed with caution or initiate a smaller position.
Likewise, if you're nearing retirement and need more income than the Vanguard Real Estate ETF might lend to your portfolio, you may want to consider other funds that provide exposure to a wider range of industries and companies.
Dividends
Does the Vanguard Real Estate ETF pay a dividend?
The Vanguard Real Estate ETF pays a dividend that yielded roughly 3.9% in late 2024. The dividend is paid on a quarterly basis. The ETF's yield is about three times more than the average S&P 500 stock payment.
Expense ratio
What is the Vanguard Real Estate ETF's expense ratio?
The Vanguard Real Estate ETF has an expense ratio of 0.13%. The Vanguard Group in particular is known for its reasonable expense ratios, and the ETF's expense ratio is far below the market average of about 0.5%. The annual fee charged by the firm for a $10,000 investment in the Vanguard Real Estate ETF would come to around $13.
Expense Ratio
Historical performance
Historical performance of the Vanguard Real Estate ETF
The Vanguard Real Estate ETF is supposed to closely mirror the performance of the MSCI US Investable Market Real Estate 25/50 Index. Let's take a look at how the ETF has delivered on that objective over the trailing one-, three-, five-, and 10-year periods:
| Return Period | 1-Year | 3-Year | 5-Year | 10-Year |
|---|---|---|---|---|
| VNQ (Market Price) | 34.53% | -0.95% | 3.80% | 5.93% |
| VNQ (NAV) | 34.42% | -0.97% | 3.80% | 5.93% |
| Benchmark | 34.60% | -0.83% | 3.95% | 6.06% |
As the chart shows, the fund's returns have roughly matched those of the index it seeks to track.
Related investing topics
The bottom line on the Vanguard Real Estate ETF
The Vanguard Real Estate ETF is a leading ETF that has broadly delivered on its objective to track the returns of the MSCI US Investable Market Real Estate 25/50 Index over the years. While the real estate industry has been dealt some bumps in the road over the last few years with the COVID-19 pandemic and the unfavorable interest rate environment, these headwinds are receding steadily.
The Vanguard Real Estate ETF features an impressive collection of REITs as well as other real estate companies across sectors ranging from telecom to to healthcare to data centers to retail. This magnifies the potential for better returns, investment income, and growth over the next five to 10 years as the real estate industry continues its recovery.
While shares of real estate stocks tend to rise and fall more sharply compared to less seasonal sectors, income-seeking investors with the appetite to invest in real estate may favor the instant diversification that this ETF provides. The Vanguard Real Estate ETF’s ultra-low expense ratio may just be icing on the cake.
FAQ
Investing in Vanguard Real Estate ETF FAQ
Where can I buy VNQ?
You can buy shares of the Vanguard Real Estate ETF through your brokerage account or from The Vanguard Group directly.
Is Vanguard VNQ a REIT?
The Vanguard Real Estate ETF invests in a wide range of real estate assets, but its holdings are primarily concentrated in REITs. Investors who buy shares of the Vanguard Real Estate ETF can gain exposure to a wide variety of REITs across various subsectors of the real estate industry.
Is VNQ a good investment?
The Vanguard Real Estate ETF could be a smart addition to a long-term investor’s portfolio if you're seeking consistent dividend income and have the risk tolerance to invest in this space.
How do I invest in REITs directly?
You can invest in REITs indirectly by holding shares of an ETF with positions in REITs, such as the Vanguard Real Estate ETF. If you want to invest in REITs directly, you can buy shares of any publicly traded REIT individually through your preferred brokerage provider.
