Vanguard vs. iShares: Is VNQ or ICF the Better U.S. REIT ETF to Buy?
Key Points
VNQ charges a lower expense ratio and offers a higher dividend yield than ICF.
VNQ holds over five times as many positions, with more diversified sector exposure compared to ICF’s concentrated REIT lineup.
Both funds saw similar five-year drawdowns, but ICF slightly outperformed on cumulative growth over that period.
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The most notable differences between iShares Select U.S. REIT ETF (NYSEMKT:ICF) and Vanguard Real Estate ETF (NYSEMKT:VNQ) are VNQ’s lower cost, broader portfolio, and higher yield, while ICF maintains a more concentrated focus and has slightly outpaced VNQ’s five-year growth.
Both ICF and VNQ are designed to give investors exposure to U.S. real estate investment trusts (REITs), but they take different approaches. This comparison examines how their cost, performance, risk, and portfolio construction stack up for those seeking real estate diversification.
Snapshot (cost & size)
| Metric | ICF | VNQ |
|---|---|---|
| Issuer | IShares | Vanguard |
| Expense ratio | 0.32% | 0.13% |
| 1-year return (as of 2026-1-2) | 1.9% | 3.3% |
| Dividend yield | 2.49% | 3.86% |
| AUM | $1.9 billion | $65.4 billion |
The one-year return represents total return over the trailing 12 months.
VNQ looks more affordable with a 0.13% expense ratio compared to ICF’s 0.32%, and it also delivers a higher dividend yield, which may appeal to income-focused investors seeking lower costs.
Performance comparison
| Metric | ICF | VNQ |
|---|---|---|
| Growth of $1,000 over 5 years | $1,261 | $1,254 |
What's inside
VNQ holds 158 positions as of Dec. 29, 2025. Its top holdings are Welltower Inc. (NYSE:WELL), Prologis Inc. (NYSE:PLD), and American Tower Corp. (NYSE:AMT), each representing key players in healthcare, industrial, and infrastructure REIT sectors.
ICF, by contrast, is more concentrated with just 30 holdings. It has the same top three stocks as VNQ, but with a tighter focus on its largest holdings, which increases its single-stock risk. Both funds avoid leverage, currency hedges, and ESG overlays, offering straightforward real estate exposure.
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What this means for investors
Since 2004, Vanguard's VNQ ETF has delivered annualized total returns of 7.2% compared to ICF's 6.9%. Similarly, VNQ has also outperformed ICF on a total return basis over the last year, three years, and ten years. Considering that these two ETFs have very similar betas (so similar levels of volatility) and nearly identical five-year drawdowns of around 35%, VNQ's slightly better returns are eye-catching.
Anchored by a 3.86% dividend yield that is far superior to ICF's 2.49%, and an expense ratio that is less than half that of its peer's, VNQ seems to provide investors with a better bang for their invested buck. Furthermore, VNQ offers better diversification, in my opinion, with its top ten holdings accounting for only 40% of its portfolio. Meanwhile, ICF's top ten equals nearly 60% of its portfolio. Similarly, VNQ holds roughly five times as many REITs as ICF, giving it more potential to find hidden gems that could develop into long-term alpha for investors.
Due to these factors, I could only consider buying Vanguard's VNQ ETF, as it appears to be a clear winner, offering lower costs, a track record of higher returns, stronger income generation, and greater diversification.
Glossary
ETF: Exchange-traded fund that holds a basket of assets and trades like a stock.
REIT: Real estate investment trust, a company that owns or finances income-producing real estate.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund’s average assets.
Dividend yield: Annual dividends paid by a fund or stock divided by its current share price.
AUM: Assets under management; the total market value of all assets in a fund.
Beta: Measure of an investment’s volatility compared with the overall market, typically the S&P 500.
Max drawdown: Largest peak-to-trough decline in value over a specified period.
Total return: Investment performance including price changes plus dividends or distributions, assuming they are reinvested.
Portfolio diversification: Spreading investments across many holdings or sectors to reduce exposure to any single risk.
Sector exposure: The proportion of a fund invested in specific industries, such as real estate or communication services.
Concentrated portfolio: Fund strategy that holds relatively few positions, increasing the impact of each holding on performance.
Leverage (in funds): Use of borrowed money or derivatives to increase a fund’s exposure beyond its net assets.
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Josh Kohn-Lindquist has positions in American Tower and Prologis. The Motley Fool has positions in and recommends American Tower, Prologis, and Vanguard Real Estate ETF. The Motley Fool recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
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