Battle of Real Estate ETFs: Vanguard Real Estate ETF Offers Lower Fees, While FlexShares Global Quality REIT Fund Delivers International Exposure

The Vanguard Real Estate ETF (NYSEMKT:VNQ) offers a cost-efficient entry to U.S. property markets, while the FlexShares Global Quality Real Estate Index Fund (NYSEMKT:GQRE) provides broader global diversification at a higher price point.

Real estate investment trusts (REITs) offer a way to gain exposure to property without managing buildings directly. While both funds target this sector, they differ in geographic scope and cost structure, appealing to investors with distinct preferences for global versus domestic market concentration.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is the more affordable option, with a 0.13% expense ratio. The FlexShares fund is more expensive at 0.46%, but it currently offers a higher dividend yield of 4.10%.

Performance & risk comparison

What's inside

The Vanguard Real Estate ETF (VNQ) primarily invests in U.S. Real Estate Investment Trusts (REITs) and aims to replicate the performance of the MSCI US Investable Market Real Estate 25/50 Index. Its portfolio includes 158 holdings, 97.00% of which are in real estate, 1.00% in basic materials, and 1.00% in cash. Its largest positions include Welltower (NYSE:WELL) at 9.80%, Prologis (NYSE:PLD) at 7.82%, and Equinix (NASDAQ:EQIX) at 6.37%. It was launched in 2004. The Vanguard fund has paid $3.47 per share over the trailing 12 months, which, at its recent ~$99.5 share price, yields 3.50%.

The FlexShares Global Quality Real Estate Index Fund (GQRE) tracks the Northern Trust Global Quality Real Estate Index, providing exposure to international property markets. It manages 205 holdings, with 99.00% allocated to real estate and 1.00% to consumer cyclicals. Its largest positions include Equinix (6.31%), Welltower (4.54%), and Prologis (4.52%). It was launched in 2013. The FlexShares fund has paid $2.73 per share over the trailing 12 months, which, at its recent ~$65.8 share price, yields 4.10%.

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Which looks like the better buy

The Vanguard Real Estate ETF (VNQ) and the FlexShares Global Quality Real Estate Index Fund (GQRE) are both real estate exchange-traded funds (ETFs). However, investors must understand that there are some key differences between these two funds. Here’s how they match up with one another.

First, there’s VNQ. Simply put, VNQ is the world’s most popular real estate ETF. With over $38 billion in AUM, VNQ isn’t only the largest real estate ETF, it’s also one of the world’s largest ETFs overall. What’s more, the fund has a 22-year history, providing investors with plenty of data on how it has performed in both bull and bear markets. As for performance, the fund has delivered a total return of 62% over the last 10 years, equating to a compound annual growth rate (CAGR) of 5.0%. The fund is focused on domestic U.S.-Based REITs, with around 1% exposure to international stocks. Finally, VNQ boasts a very affordable expense ratio of 0.13% and a solid dividend yield of 3.5%.

Then, there’s GQRE. This fund takes a different strategic approach. While it still maintains significant exposure to U.S.-based stocks (68% of total holdings), it also has significant international exposure, including Japan (8%), Hong Kong (5%), and France (4%). As a result, GQRE is slightly less correlated to the U.S. stock market. Turning to fees, the fund’s expense ratio of 0.45% is significantly higher than VNQ’s. In addition, GQRE is a much smaller fund, with about about $430 million in AUM. This could pose liquidity concerns, making it difficult for investors to transact in shares, particularly during periods of high volatility. As for performance, GQRE has delivered a total return of 46% over the last 10 years, with a CAGR of 3.9%.

In summary, many investors will favor VNQ due to its lower expense ratio, greater liquidity, and focus on the domestic real estate market. However, others may prefer GQRE thanks to its international exposure and higher dividend yield.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Equinix, Prologis, and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.