VNQ vs. RWR: Broad Real Estate Exposure or a Defined REIT Allocation

Vanguard Real Estate ETF (VNQ) stands out for its lower expense ratio, broader mix of holdings, and far greater assets under management compared to State Street SPDR Dow Jones REIT ETF (RWR), though both funds offer similar income and sector exposure.

Both VNQ and RWR aim to provide investors with broad access to U.S. real estate investment trusts (REITs), but they differ in cost structure, portfolio breadth, and liquidity. While RWR focuses strictly on REITs tracked by the Dow Jones U.S. Select REIT Capped Index, VNQ tracks a wider real estate universe, including some non-REIT property companies, with the intent of mirroring the MSCI US Investable Market Real Estate 25/50 Index.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

VNQ looks more affordable with a 0.13% expense ratio versus 0.25% for RWR, which could appeal to cost-conscious investors, and both funds currently offer a matching 4.0% dividend yield.

Performance & risk comparison

What's inside

VNQ holds 158 stocks, spanning 98% real estate, 1% communication services, and 1% cash or other assets. Its top positions include Welltower (NYSE:WELL), Prologis (NYSE:PLD), and American Tower (NYSE:AMT), with the fund now over 21 years old. VNQ's broader sector mix means it captures some property-adjacent businesses that RWR excludes.

RWR is more narrowly focused, holding 102 companies—all classified as real estate—such as Welltower, Prologis, and Simon Property Group (NYSE:SPG). Neither ETF uses leverage, currency hedges, or ESG screens, so both are straightforward real estate plays. RWR may appeal to those preferring a pure REIT approach, while VNQ delivers wider property exposure.

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What this means for investors

Real estate ETFs often look straightforward until interest rates remind investors how quickly sentiment can shift. That tension is why the difference between the Vanguard Real Estate Index Fund and the State Street SPDR Dow Jones REIT matters even though both target U.S.-listed real estate. VNQ is built as a large, liquid core holding with a low-fee structure, which allows it to sit comfortably within a long-term allocation. RWR follows a narrower REIT-only index with fewer holdings and a tighter mandate.

The key differences show up in how each ETF's portfolio is assembled. VNQ tracks a broader real estate universe that can include property-adjacent businesses alongside traditional REITs, which spreads exposure across more business models and revenue streams. RWR stays closely aligned with a stricter REIT definition, keeping its returns more tightly linked to a smaller set of property owners and operators. Over time, the construction at the margins begins to shape performance and volatility.

For investors, the difference shows up in how the fund is used inside the portfolio. VNQ works well when real estate is intended as a stable, long-term allocation that can be held through rate cycles with minimal attention. RWR is better suited to investors who want their real estate exposure tightly defined as REITs, even if that means holding a more concentrated position. The choice is whether real estate is meant to play a steady supporting role or to stand out as a more focused REIT bet.

Glossary

ETF: Exchange-traded fund; a fund that trades on stock exchanges and holds a basket of assets.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Assets under management (AUM): The total market value of assets a fund manages on behalf of investors.
Dividend yield: Annual dividends paid by a fund divided by its share price, shown as a percentage.
REIT: Real Estate Investment Trust; a company that owns or finances income-producing real estate.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
Drawdown: The percentage decline from a fund's peak value to its lowest point over a specific period.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Index: A benchmark measuring the performance of a group of securities, used to track or compare investments.
Liquidity: How easily an asset or fund can be bought or sold without affecting its price.
Sector exposure: The proportion of a fund's assets invested in specific industry sectors.
Leverage: Using borrowed money to increase potential returns, which also increases risk; neither ETF in the article uses leverage.

Eric Trie has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.