XLRE vs. RWO: Which Real Estate ETF Offers Better Value
Key Points
State Street Real Estate Select Sector SPDR ETF has a significantly lower expense ratio than State Street SPDR Dow Jones Global Real Estate ETF.
State Street SPDR Dow Jones Global Real Estate ETF provides international exposure and holds 224 positions, while the other fund focuses on 30 U.S. large-cap stocks.
Both funds currently offer an identical dividend yield of 3.5%.
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State Street Real Estate Select Sector SPDR ETF (NYSEMKT:XLRE) focuses on U.S. large-cap property stocks with a low 0.08% expense ratio, while State Street SPDR Dow Jones Global Real Estate ETF (NYSEMKT:RWO) offers a global portfolio for a higher fee of 0.50%.
Real estate investment trusts (REITs) and property companies offer a way to generate income and capture growth without the headaches of direct property management. These two funds provide different lenses on the sector: one focuses strictly on U.S. giants while the other captures the global real estate landscape.
Snapshot (cost & size)
| Metric | RWO | XLRE |
|---|---|---|
| Issuer | SPDR | SPDR |
| Recent share price | $46.13 | $41.35 |
| Expense ratio | 0.5% | 0.08% |
| 1-yr return | 4.95% | 3.08% |
| Dividend yield | 3.5% | 3.5% |
| Beta | 0.90 | 0.98 |
| AUM | $1.25 billion | $8.21 billion |
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.
State Street Real Estate Select Sector SPDR ETF is the more affordable option with an expense ratio of 0.08%, 0.42 percentage points lower than its counterpart. With $8.21 billion in assets under management (AUM), it is considerably larger and more liquid than the $1.25 billion State Street SPDR Dow Jones Global Real Estate ETF. This pricing difference reflects the operational complexity of managing a global portfolio versus a domestic one.
Performance & risk comparison
| Metric | RWO | XLRE |
|---|---|---|
| Max drawdown (5 yr) | (32.5%) | (32.9%) |
| Growth of $1,000 over 5 years (total return) | $1,090 | $1,094 |
What's inside
State Street Real Estate Select Sector SPDR ETF tracks the Real Estate Select Sector Index, focusing on 30 U.S. companies in the S&P 500 while excluding mortgage REITs. Its largest positions include Welltower (NYSE:WELL) at 11.5%, Prologis (NYSE:PLD) at 8.8%, and Equinix (NASDAQ:EQIX) at 7%. It was launched in 2015. State Street Real Estate Select Sector SPDR ETF has paid $1.41 per share over the trailing 12 months, which, on its recent ~$41.35 share price, works out to a 3.4% yield.
State Street SPDR Dow Jones Global Real Estate ETF tracks the Dow Jones Global Select Real Estate Securities Index, holding 224 stocks across global markets. It requires companies to generate 75% of revenue from real estate operations. Key weights include Real Estate at 90% and Cash at 7%. Largest positions include Welltower at 10.24%, Prologis at 7.62%, and Equinix at 6.25%. It was launched in 2008. State Street SPDR Dow Jones Global Real Estate ETF has paid $1.60 per share over the trailing 12 months, which, on its recent ~$47.08 share price, works out to a 3.47% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which looks like the better buy
XLRE looks to be the better buy. It delivers the same yield as RWO and has had similar growth over five years, but at a much lower cost than RWO. RWO only wins if you're specifically looking for broad global real estate exposure and can justify the higher cost.
Here are four reasons State Street Real Estate Select Sector SPDR ETF is the winner:
- Cost: With an expense ratio 0.42 percentage points lower than RWO, XLRE offers a big advantage that can compound over time.
- Performance: RWO's recent performance has been modestly better than XLRE’s, but it's impossible to know if it'll be strong enough over the long term to offset the higher expense ratio.
- Income: With neck-and-neck dividend yields, RWO provides little edge for investors counting on dividends to help feed their income.
- Exposure: XLRE focuses on U.S. companies, which doesn't automatically make it "better." However, in this case, RWO's global diversification comes at a much higher price that can eat away at a portfolio.
Before making a final decision, compare fees, U.S. versus global exposure, and long-term performance. If you prioritize low-cost U.S. real estate concentration, XLRE is a better fit for you.
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Dana George 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.
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