Looking for a REIT ETF? RWR and SCHH Offer Many Similarities -- and a Few Key Differences

This comparison looks at two popular real estate investment trust (REIT) exchange-traded funds: the Schwab U.S. REIT ETF (NYSEMKT:SCHH) and the State Street SPDR Dow Jones REIT ETF (NYSEMKT:RWR).

Both aim to provide broad exposure to the U.S. REIT market, but cost, yield, recent performance, and portfolio construction may influence which is more suitable for investors seeking real estate sector diversification.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

RWR comes with a higher annual fee than SCHH. However, the trade-off is a more generous dividend yield, which may appeal to income-focused investors willing to pay more for a higher payout.

Performance & risk comparison

What's inside

RWR tracks a basket of 102 U.S. REITs, focusing exclusively on real estate companies. Its largest positions are Prologis, Welltower, and Equinix, which together account for more than 24% of assets. The fund has a track record of nearly 25 years in the market, making it one of the more established options in this segment.

While SCHH also invests solely in U.S. REITs, but with a broader portfolio of 123 holdings. Its top three positions mirror RWR’s, though with slightly different weights.

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What this means for investors

SCHH and RWR are similar in many ways. They both focus solely on the real estate industry, have experienced similar returns and levels of volatility over the last five years, and share the same top three holdings.

SCHH is somewhat more diversified, with around two dozen more stocks than RWR. But with over 100 holdings each, both funds provide a fair amount of diversification.

The primary differences come down to fees, yield, and assets under management.

SCHH offers a significantly lower expense ratio of 0.07%, meaning investors will pay $7 per year in fees for every $10,000 invested -- compared to $25 per year with RWR. While it's a slight difference, it will be much more noticeable for long-term investors and those with larger account balances.

RWR shines, however, with its higher dividend yield. The higher payout can help investors claw back some of the money they're paying in fees, providing a source of long-term passive income.

Finally, the difference in assets under management (AUM) could be significant for some investors. SCHH boasts a much higher AUM, providing greater liquidity and making it easier for investors to buy and sell larger amounts. This won't necessarily be a selling point for everyone, but it is a factor to consider.

Glossary

REIT (Real Estate Investment Trust): A company owning or financing income-producing real estate, required to distribute most taxable income.
ETF (Exchange-Traded Fund): A fund holding a basket of assets that trades on an exchange like a stock.
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.
Beta: A 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 managed by a fund or investment firm.
Drawdown: The percentage decline from an investment’s peak value to its subsequent lowest point.
Max drawdown: The largest observed percentage drop from peak to trough over a specified period.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
Diversification: Spreading investments across many securities to reduce the impact of any single holding’s performance.
Holdings: The individual securities or positions owned within a fund’s portfolio.
Portfolio construction: The process of selecting and weighting investments to build a fund or an investor’s overall portfolio.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Equinix and Prologis. The Motley Fool has a disclosure policy.