Many choices for investors.

Investors are drawn to real estate investments for different reasons. For some, the investments offer big yield potential as properties generate a steady stream of income for shareholders. For others, real estate assets are a hedge against volatility. When it comes to real estate stocks, more seem to be popping up every day. Whether you're investing in mortgage lenders or industrial park operators or various real estate investment trusts, there are many options out there to sort through. If you're having trouble choosing which individual real estate stock to buy, or if you simply prefer the peace of mind that come with diversification, consider these real estate exchange-traded funds instead.

Next:Vanguard Real Estate ETF (ticker: VNQ) Credit

(Getty Images)

Vanguard Real Estate ETF (ticker: VNQ)

A $63 billion behemoth, the VNQ fund from Vanguard is one of the most popular ways to invest in real estate via a brokerage account or retirement plan. The portfolio spans all manner of companies that own properties, ranging from health care facilities to hotels to malls. There are about 200 component stocks that make up this real estate ETF. That's a very diversified list and at a relatively cheap fee structure at just 0.12% annually in expenses. You'll only pay about $12 per year on every $10,000 invested.

Advertisement

Next:

Many choices for investors.

Investors are drawn to real estate investments for different reasons. For some, the investments offer big yield potential as properties generate a steady stream of income for shareholders. For others, real estate assets are a hedge against volatility. When it comes to real estate stocks, more seem to be popping up every day. Whether you're investing in mortgage lenders or industrial park operators or various real estate investment trusts, there are many options out there to sort through. If you're having trouble choosing which individual real estate stock to buy, or if you simply prefer the peace of mind that come with diversification, consider these real estate exchange-traded funds instead.

Vanguard Real Estate ETF (ticker: VNQ)

A $63 billion behemoth, the VNQ fund from Vanguard is one of the most popular ways to invest in real estate via a brokerage account or retirement plan. The portfolio spans all manner of companies that own properties, ranging from health care facilities to hotels to malls. There are about 200 component stocks that make up this real estate ETF. That's a very diversified list and at a relatively cheap fee structure at just 0.12% annually in expenses. You'll only pay about $12 per year on every $10,000 invested.

Schwab U.S. REIT ETF (SCHH)

A slightly smaller list of real estate companies makes up the SCHH fund from Schwab, with just under 110 components in this ETF at present and about $5 billion in total assets under management. The fees are a bit smaller too, however, with an expense ratio of just 0.07% annually or $7 each year on every $10,000 you invest. The holdings are big REITs you should know, including mall operator Simon Property Group (SPG) and orange locker operator Public Storage (PSA).

iShares Cohen & Steers REIT ETF (ICF)

This domestic REIT fund is much narrower than the other ETFs on this list, with a total portfolio of just 30 companies. These include names that are featured on other funds that target the sector, such as $84 billion telecommunications infrastructure company American Tower Corp. (AMT), but in a much more focused way. This smaller list of stocks in the ICF fund admittedly reduces your diversification across the sector. However, with more assets allocated to the biggest and most dominant players, in some ways it could be seen as lower risk than a fund that holds more of the smaller REITs.

iShares Mortgage Real Estate ETF (REM)

A different way to invest in real estate than buying a fund of property operators is to focus on financing and mortgage companies. There's more risk here, since there aren't acres of hard assets backing up other REITs, but there's potentially much bigger rewards. For example, the fund comprised of picks like Annaly Capital Management (NLY), a REIT that focuses on commercial and residential loans and passes through a chunk of interest payments on this debt to shareholders. As a result of picks like this, REM has an amazing yield of 8.8% based on the last 12 months of distributions to shareholders of this ETF.

ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL)

There’s a supercharged twist on REIT yield with this fund offered by investment bank UBS. The aim is to deliver twice the yield of the typical lending-focused REIT, using complex derivatives to generate big monthly paydays. How big? Well, based on the last 12 months of distributions, the yield on this fund is more than 20% annually. Now, there's some big risks here, including a heavy reliance on a few REIT investments as well as some serious risks if interest rates rise significantly and upend the complex borrowing scheme that fuels this fund. But, yield this size doesn’t come along every day – so MORL is still worth a look.

Nuveen Short-Term REIT ETF (NURE)

If you are terrified of investing in loan-related real estate plays, either because you want the certainty of physical property or fear rising interest rates will cause pain, then consider this Nuveen fund. NURE is positioned in U.S. REITs that are insulated from gyrations in the lending market, including hotel operators, self-storage facilities and similar companies. The yield is much lower than the typical REIT fund after you eliminate the more financial-oriented players, as NURE’s distributions add up to only a 3.3% annual yield at present. However, this ETF is much lower risk than some of the other funds on the list.

Vanguard Global Ex-U.S. Real Estate ETF (VNQI)

One final element of real estate investing worth considering is a geographic diversification outside of the U.S. Sure, many of the big-name REITs you're likely most familiar with are domestic companies, but it's a great big world out there – with plenty of real estate opportunities overseas. VNQI specifically excludes U.S. companies, so it's an effective way to layer in international exposure. The fund has about 580 stocks, too, scattered around the world in a truly diverse strategy. And, with roughly $6.6 billion in assets under management, it's substantial enough in size to trade easily and offer a low fee structure of just 0.12% in annual expenses.

Best ETFs to invest in real estate.

Vanguard Real Estate ETF (VNQ)Schwab U.S. REIT ETF (SCHH)iShares Cohen & Steers REIT ETF (ICF)iShares Mortgage Real Estate ETF (REM)ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL)Nuveen Short-Term REIT ETF (NURE)Vanguard Global Ex-U.S. Real Estate ETF (VNQI)1 of 10

Jeff Reeves, Contributor

A veteran journalist with extensive capital markets experience, Jeff Reeves began writing for ...  Read more

The Most Important Ages for Retirement Planning

Retirement

The Most Important Ages for Retirement Planning: Age 50

Retirement

The Most Important Ages for Retirement Planning: Age 59 ½

Retirement

The Most Important Ages for Retirement Planning: Age 65

Retirement

The Most Important Ages for Retirement Planning: Age 66

Retirement

The Most Important Ages for Retirement Planning: Age 70 ½