XLRE vs. VNQ: a Targeted Sector Approach or Broad Real Estate Exposure

The State Street Real Estate Select Sector SPDR ETF (XLRE) and the Vanguard Real Estate ETF (VNQ) differ most in breadth and assets under management, with VNQ offering more holdings, a larger AUM, and a marginally higher yield, while XLRE remains the lower-cost choice for sector exposure.

Both XLRE and VNQ provide exposure to United States real estate equities, but their approaches diverge: XLRE focuses narrowly on S&P 500 real estate names, while VNQ casts a wider net across large, mid, and small-cap REITs. This comparison highlights key differences in cost, yield, diversification, and risk to help investors decide which style may better suit their portfolio needs.

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.

XLRE looks more affordable for cost-conscious investors, with an expense ratio of 0.08% compared to VNQ’s 0.13%. VNQ, however, offers a slightly higher yield, paying out 3.9% versus XLRE’s 3.4%.

Performance & risk comparison

What's inside

VNQ tracks a broad real estate index and, at over 21 years old, now manages $65.4 billion across 158 holdings. Its portfolio is dominated by real estate companies (98%), but a small slice is allocated to communication services and cash. Top positions include Welltower Inc (NYSE:WELL), Prologis Inc (NYSE:PLD), and American Tower Corp (NYSE:AMT), with the largest holding making up just over 9% of assets.

XLRE, in contrast, focuses exclusively on real estate stocks in the S&P 500, resulting in a more concentrated portfolio of 31 holdings. Its top three positions—Welltower Inc (NYSE:WELL), Prologis Inc (NYSE:PLD), and American Tower Corp (NYSE:AMT)—command slightly larger weights than in VNQ, leading to a portfolio that may move more in sync with the largest real estate names. Neither fund carries structural quirks or leverages, and both exclude mortgage REITs.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

The biggest difference between XLRE and VNQ shows up when markets stop cooperating. VNQ is built as a broad real estate allocation, spreading exposure across large-, mid-, and small-cap REITs. That wider reach supports a slightly higher yield but also means the fund can swing more when interest rates or economic expectations shift. VNQ fits best when investors want one fund to represent real estate across a full market cycle.

XLRE takes a tighter and more controlled approach. By limiting exposure to S&P 500 real estate names, it concentrates results in a smaller group of large, liquid REITs, with heavier weights in the sector’s biggest players. The lower fee helps, but concentration is the defining trait. XLRE works best as precise sector exposure rather than a stand-alone real estate allocation.

For investors, the choice is about coverage versus control. VNQ offers diversification across the REIT landscape. XLRE offers a focused slice that integrates cleanly with an S&P 500-centric portfolio. The most suitable ETF depends on whether real estate is intended to function as a diversified income sleeve or as a concentrated sector tilt within a broader equity portfolio.

Glossary

ETF: Exchange-traded fund that holds a basket of assets and trades like a stock on exchanges.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund's average assets.
Dividend yield: Annual dividends paid by a fund divided by its current share price, shown as a percentage.
Beta: Measure of an investment's volatility compared with the overall stock market, often the S&P 500.
AUM: Assets under management; the total market value of all assets held by a fund.
Max drawdown: The largest peak-to-trough decline in an investment's value over a specified period.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
REIT: Real estate investment trust; a company that owns or operates income-producing real estate.
Sector ETF: An ETF focused on a specific area of the economy, such as real estate or technology.
Index: A rules-based basket of securities used to measure or track a particular market segment.
Large-cap: Companies with relatively high market value, typically tens of billions of dollars or more.
Small-cap: Companies with relatively low market value, generally a few hundred million to a few billion dollars.

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.