This Global REIT Beats SCHH on Yield. Is It a Better Buy for Real Estate Investors?

The Schwab U.S. REIT ETF (NYSEMKT:SCHH) offers a low-cost, domestically focused real estate portfolio, while the Northern Trust Global Quality Real Estate ETF (NYSEMKT:GQRE) provides a higher-yielding, globally diversified alternative for real estate investors.

Both funds provide exposure to the real estate sector, but through different lenses. While one focuses exclusively on the U.S. market with a massive scale, the other looks across borders to find quality properties and higher income potential. This choice depends on a preference for cost efficiency versus geographic breadth and higher current income.

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 Schwab fund is significantly more affordable for long-term holders, with an expense ratio of just 0.07%. However, the Northern Trust fund offers a considerably higher payout for income-seeking investors, providing a yield gap of 1.52 percentage points over its domestic-focused competitor.

Performance & risk comparison

What's inside

The Schwab U.S. REIT ETF focuses entirely on the domestic market with 100% exposure to real estate. Its strategy mirrors a designated index of U.S. equity-classified real estate investment trusts. The portfolio holds 120 positions, and its largest positions include Welltower at 11.2%, Prologis at 8.6%, and Simon Property Group at 4.6%. Launched in 2011, this fund provides a liquid gateway to domestic property markets. Schwab U.S. REIT ETF has paid $0.66 per share over the trailing 12 months, which on its recent ~$23.85 share price works out to a 2.8% yield.

In contrast, the Northern Trust Global Quality Real Estate ETF has a broader geographic reach, seeking to diversify income streams through global real estate exposure. It still concentrates 99% of its assets in the real estate sector and 1% in consumer cyclicals. The fund is more diversified with 199 positions, and its largest holdings include Prologis at 7%, Welltower at 5%, and Equinix Inc (NASDAQ:EQIX) at 4.3%. Launched in 2013, it aims to match the performance of the Northern Trust Global Quality Real Estate Index. Northern Trust Global Quality Real Estate ETF has paid $2.73 per share over the trailing 12 months, which on its recent ~$64.03 share price works out to a 4.3% yield.

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Which looks like the better buy

Investing in real estate index funds can be a great way to diversify your portfolio and tap into a reliable source of dividend income without the hassle and cost of owning and managing physical real estate locations. Schwab's REIT ETF has outperformed Northern Trust's option over the last one and five years and charges a significantly lower expense ratio. It's also much larger in terms of assets under management, which provides both stability and liquidity for investors. But its biggest differentiator is its scope -- it only holds domestic real estate companies.

The Northern Trust Global Quality Real Estate ETF looks beyond the U.S. market to hold REITs from around the world. It charges a much higher expense ratio than the Schwab ETF, but also pays out a more attractive dividend, which could appeal to income investors. It holds more individual companies than the Schwab ETF, but owns a much smaller total portfolio in terms of assets under management. And its international scope may make it more volatile, as companies contend with different geopolitical, currency exchange, and tariff-related fluctuations. That said, note that its top three holdings are all U.S.-based REITS.

GQRE's dividend payout is tempting, but for most investors starting to build out a real estate portion of an equity portfolio, SCHH probably provides a better combination of income, diversification, and stability.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Equinix, Prologis, and Simon Property Group. The Motley Fool has a disclosure policy.