Real Estate ETF Comparison: RWO's Global Exposure or ICF's Domestic Conviction?

The factual distinction between iShares Select U.S. REIT ETF (NYSEMKT:ICF) and State Street SPDR Dow Jones Global Real Estate ETF (NYSEMKT:RWO) lies in geographic scope and portfolio density, contrasting a global, 224-holding fund with a U.S.-focused, 30-holding strategy.

Both ETFs offer a way for investors to gain exposure to real estate without the burden of direct property management. These funds offer exposure to income-generating commercial and residential assets through the liquid stock market, providing a convenient alternative to owning physical buildings by tracking major real estate investment trust benchmarks.

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 iShares fund is significantly more affordable, with an expense ratio of 0.32% compared to the 0.5% charged by the State Street fund. This lower cost may appeal to long-term investors, even though the State Street fund provides a higher 3.5% dividend yield for those prioritizing immediate income.

Performance & risk comparison

What's inside

The iShares fund maintains a concentrated portfolio of 30 holdings. Its largest positions include Equinix at 8.3%, Welltower at 8.2%, and Prologis at 8.06%. It launched in 2001. iShares Select U.S. REIT ETF has paid $1.74 per share over the trailing 12 months, which on its recent ~$64.08 share price works out to a 2.7% yield.

State Street SPDR Dow Jones Global Real Estate ETF holds 224 holdings. Its largest positions include Welltower at 10.2%, Prologis at 7.9%, and Equinix at 6.2%. It launched in 2008. State Street SPDR Dow Jones Global Real Estate ETF has paid $1.63 per share over the trailing 12 months, which on its recent ~$46.28 share price works out to a 3.5% yield.

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Which looks like the better buy

Investing in REITs and other real estate stocks is a great way to generate reliable income and capture the upside potential of real estate without the time commitment and complexity of owning physical space. Investing in funds that hold real estate stocks further diversifies your holdings and further simplifies your overall real estate strategy. But which ETF is the better buy?

While large-cap U.S. real estate companies anchor both funds, investors seeking broad real estate exposure will likely gravitate toward the State Street SPDR Dow Jones Global Real Estate ETF, which has more than 200 holdings and offers exposure to international markets. The fund allocates a little more than 70% of its holdings to the United States, with 6.9% of the fund in Japanese companies and 3.7% in the United Kingdom. The fund also has a higher dividend yield than its domestic counterpart, though its higher expense ratio could eat into some of your gains over the long term.

On the other hand, investors chasing bigger gains who are comfortable with a little more concentration risk may be better served with ICF, which focuses exclusively on 30 large-cap U.S. stocks, and has generated slightly better total returns for investors.

That said, probably the best approach for investing in either fund is to commit to reinvesting your dividends, provided you don't need the cash for other purposes. Indeed, over the last five years, the share prices of both funds have decreased -- ICF is down 2.5% and RWO is down 10.4% as of Oct. 9. But on a total return basis, with dividends reinvested, ICF has returned 11.37% and RWO has returned about 7.3%.

Sarah Sidlow 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.