ICF vs. XLRE: Real Estate ETFs That Can Build Up Your Portfolio

Both the State Street Real Estate Select Sector SPDR ETF (NYSEMKT:XLRE) and iShares Select US REIT ETF (NYSEMKT:ICF) target U.S. real estate investment trusts (REITs), providing diversified access to the real estate sector. Investors comparing these two may want to consider the cost, yield, and long-term performance, as their holdings and sector tilts exhibit notable overlap.

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 charges just 0.08% in expenses compared to ICF’s 0.32%, while also offering a higher dividend yield.

Performance & risk comparison

What's inside

ICF holds 34 U.S. REITs, with a primary focus on equity REITs and no exposure to mortgage REITs or real estate stocks. Its largest positions include Prologis (NYSE:PLD), Welltower (NYSE:WELL), and American Tower (NYSE:AMT), which collectively make up approximately 25% of the fund. With a fund age of nearly 25 years, ICF offers a long performance track record.

XLRE is similarly concentrated, holding 34 assets in the real estate sector. However, the holdings don't just include REITs, but also stocks of companies from the S&P 500 that are involved in real estate. The more diversified holdings within XLRE are largely why the ETF has a higher AUM than ICF, despite being around for 14 fewer years.

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What this means for investors

Although XLRE has a higher dividend yield, a significantly lower expense ratio, and broader real estate exposure than ICF, investors should be cautious of its current payout ratio. The payout ratio reflects the percentage of a company's or ETF's earnings that are distributed as dividends. Payout ratios can vary widely, but since REITs are required to distribute 90% of their taxable income as dividends, it's common for real estate ETFs to have payout ratios near that level. However, when payout ratios reach above 100%, that's when it can become alarming.

ICF's payout ratio is currently 91.97%, which is around that 90% level. XLRE's payout ratio is 124.09%, indicating that the fund's dividend payments exceed its earnings. While the ETF could have simply held excess profits that it wanted to distribute in previous quarters, investors may want to monitor the ETF's upcoming quarterly dividend payment. Payout ratios above 100% are often unsustainable in the long term and will eventually drop, resulting in a corresponding decrease in the dividend amount. XLRE's next quarterly dividend distribution is expected to be around mid-March 2026.

Glossary

ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets like stocks or bonds.
Expense ratio: The annual fee, as a percentage of assets, that a fund charges its shareholders.
Dividend yield: The annual dividends paid by a fund divided by its current price, expressed as a percentage.
REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate.
Equity REIT: A REIT that owns and manages real estate properties, earning income primarily from rents.
Mortgage REIT: A REIT that invests in mortgages or mortgage-backed securities, earning income from interest.
Sector exposure: The proportion of a fund's assets invested in a particular industry or sector.
Beta: A measure of a fund's volatility compared to the overall market, typically the S&P 500.
Max drawdown: The largest observed percentage drop from a fund's peak value to its lowest point over a period.
AUM (Assets Under Management): The total market value of assets that a fund manages on behalf of investors.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Pure-play: An investment focused exclusively on a single industry or sector, with minimal diversification outside that area.

Adé Hennis has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Tower and Prologis. The Motley Fool has a disclosure policy.