iShares Select U.S. REIT ETF vs. iShares Global REIT ETF: Which Could Deliver More Passive Income For Long-Term Investors?

The iShares Select U.S. REIT ETF (NYSEMKT:ICF) provides concentrated exposure to large-cap domestic real estate, while the iShares Global REIT ETF (NYSEMKT:REET) offers a cheaper, globally diversified portfolio across developed and emerging markets.

Real estate investment trusts (REITs) offer a way for investors to gain exposure to income-producing property markets without the complexities of managing physical assets. Choosing between these two iShares funds involves weighing the benefits of broad global diversification against a highly concentrated strategy focused on the largest players in the U.S. market.

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.

Cost-conscious investors may find the iShares Global REIT ETF more attractive, as its 0.14% expense ratio is significantly lower than its domestic-focused peer. Furthermore, the global fund currently offers a more robust income stream, with a yield gap of 0.90 percentage points in trailing payouts.

Performance & risk comparison

What's inside

The iShares Select U.S. REIT ETF offers a concentrated approach, holding just 30 positions to focus specifically on the largest companies in the domestic real estate industry. By targeting firms that represent the most significant market share in the U.S., the fund aims to provide performance driven by industry leaders. Its largest positions include Welltower (NYSE:WELL) at 8.32%, American Tower REIT (NYSE:AMT) at 7.76%, and Equinix REIT (NYSE: EQIX) at 7.85%. It was launched in 2001. The 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.

In contrast, the iShares Global REIT ETF tracks a much wider index of 317 global real estate equities, spreading risk across multiple countries and economic zones. This global reach is primarily allocated to developed market but it does hold some exposure to emerging markets as well. Its primary sector weights include retail REITs at 18%, industrial REITs at 18%, and healthcare REITs at 17%. Top holdings include Welltower at 9.60%, Prologis at 7.10%, and Equinix at 5.76%. It was launched in 2014. The iShares Global REIT ETF has paid $0.93 per share over the trailing 12 months, which on its recent ~$25.69 share price works out to a 3.6% yield.

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Which looks like the better buy

With interest rates remaining elevated, real estate companies will face financing challenges for the foreseeable future. However, demand for data centers, healthcare facilities, and other specialized properties provides opportunities for continued growth.

For long-term investors looking to capitalize on this growth, the iShares Global REIT ETF looks like the better buy as it offers a combination of income, lower costs, and broader diversification. With a dividend yield of approximately 3.6% compared to 2.8%, the global fund offers a larger income stream while charging less than half the annual management fee.

The iShares Select U.S. REIT ETF has its appeal and is worth considering since it has outperformed its global counterpart over the past decade. However, the global fund offers many of these same advantages without concentrating so heavily on a handful of companies. In fact, roughly 73% of its portfolio remains invested in U.S. real estate, providing substantial exposure to the domestic market while adding opportunities overseas.

For investors looking to hold real estate over the next decade, the iShares Global REIT ETF looks like the way to go. Its combination of higher income, lower expenses, and broader diversification makes it a more balanced long-term investment, even if its concentrated U.S. counterpart has delivered stronger historical returns.

RJ Fulton 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.