UK REIT ETFs: Best UK Real Estate Investment Trusts ETFs (2024)

Before we get into which UK REIT ETFs to invest in, let’s make sure we’re all on the same page when it comes to what is an ETF. Exchange-traded funds (ETFs), is a kind of security that follows an asset, whether that asset is a commodity, a sector, or something else that can be bought and sold on a stock exchange, in a similar way to that of a regular stock or share. When it comes to ETFs vs Index Funds, both are worthy investment vehicles for investors, the differences between the two can make each product more or less suitable for a given investor.

What about REITs? An REIT, or Real Estate Investment Trust, is a form of investment fund, similar to a mutual fund, whose portfolios are comprised of real estate holdings of private residences, commercial real estate like offices or retail locations. Real estate investment trusts companies own and manage real estate properties to generate income. The three main types of REITs are Equity REITs, mortgage REITs, and hybrid REITs.

Equity REITs

Equity REITs account for the vast majority of REITs, owning or directly investing in income-producing real estate properties. The revenue that these REITs generate comes directly from rental income generated by the properties. The types of properties that are usually included in REITs range from shopping malls, apartment and condominium buildings, corporate office spaces, nursing homes, and even storage facilities.

Mortgage REITs

As opposed to equity REITs, mortgage REITs invest in real estate mortgages, buying either residential or commercial mortgage-backed securities (MBS) or others directly purchasing or originating mortgages for borrowers and homeowners. Mortgage REITs generate a profit from the interest earned from price appreciation in the value of the MBS or the interest earned from mortgage loans.

Hybrid REITs

While they only make up a small percentage of the REIT industry, hybrid REITs combine the approaches of equity and mortgage-backed REITs. They make direct investments in both real estate and mortgage loans. Investors can profit from both equity and mortgage REITs in one asset by investing in hybrid REITs. Despite the fact that they may invest in both physical real estate and mortgages/MBSs, they normally favor one over the other. Investing in hybrid REITs has a low risk profile and provides consistent income from property appreciation and dividend payouts.

REITs themselves are also traded on major stock exchanges, where investors may purchase shares directly in an REIT, representing ownership of the individual company, just like regular stocks. In comparison, REIT ETFs primarily invest in equity REIT securities as well as other derivatives, tracking real estate indices with low expense ratios. As a result, investors have greater exposure to the larger real estate sector with less risk, since REIT indices include many different types of REITs.

Are REIT ETF worth it?

Investing in real estate investment trusts in general can be a great addition to investment portfolios for risk-averse investors looking for consistent dividends as a way of generating steady income that is protected from inflation. In a certain sense, that is the true benefit to investing in real estate in general. As for owning REIT ETFs specifically, on the other hand,this type of investment can be a more solid choice for investors who are looking for real estate investments in the UK that provide for greater flexibility and diversification than investing in brick and mortar.

REIT ETFs represent a more accessible means for investing in real estate, since not all investors have the capital required to invest in brick and mortar, while there are usually no or low minimum investments for buying REIT ETF shares. REIT ETFs track a variety of REIT holdings which also generate strong, steady returns, however, REIT ETFs and ETFs in general are not without their drawbacks.

One of the main criticisms of ETFs is that relative to other investment vehicles, they do not provide as high returns, and are subject to greater tracking error than other investment vehicles. Investors who are looking for price appreciation rather than steady income should consider investing in another investment vehicle.

What is the biggest REIT ETF?

The biggest UK-based REIT ETF in terms of total assets managed is iShares UK Property UCITS ETF, with a fund size of £517m. Internationally, the largest REIT ETF is Vanguard Real Estate ETF, with a fund size of $42b.

Vanguard Real Estate ETF (VNQ)

According to the Vanguard website, the Vanguard REIT ETF invests primarily (about 98%) in US real estate and REITs, covering office buildings, hotels, and other properties. As of June 2022, it is the largest Real Estate ETF, with $42 billion in assets, of which real estate holdings account for 44%, REITs account for 37% and the housing industry accounts for 14%.

The fund tracks the MSCI US Investable Market Real Estate 25/50 Transition GTR Index, giving investors access to the Index’s underlying assets and paying a steady stream of dividends. The Vanguard Real Estate ETF expense ratio is very low, only 0.12% and a tracking difference of -0.22%.

Which REIT ETF is best?

The best UK property ETFs are those that match an investor’s risk appetite, with a low expense ratio while providing steady dividends. While not all UK REIT ETFs are ISA compatible, for those that are, you can invest through your general investment account. The following are some UK REIT ETF investment options that, according to analysts of BuyShares.co.uk, have presented low expenses and consistent performance in the past:

iShares UK Property UCITS ETF (ticker: IUKP)

This property ETF, UK country-specific, is invested 27% in diversified REITs, 11% in office space, 10% in residential, 8% in property ownership and development, and 6% in retail space. This ETF seeks to achieve growth through diversification in the UK real estate market and pays dividends to the fund’s shareholders.

The fund tracks the FTSE EPRA/NAREIT United Kingdom Index of REITs and real estate companies and has achieved gains of 21% in 2021, and 8.4% since the start of 2022. Its expense ratio is 0.40% and a UCITS risk factor of 5, with 1 being the lowest and 7 being the highest. The fund also has a strong MSCI ESG (Environmental, Social, and Governance) rating of 6.8 out of 10.

iShares MSCI Target UK Real Estate ETF (UKRE)

With a net worth of £73 million, iShares MSCI Target UK Real Estate ETF invests exclusively in the United Kingdom, focusing on more liquid real estate and government bonds. The fund is listed on the London Stock Exchange and eligible for inclusion in ISAs and SIPPs, and it has an MSCI ESG rating of 6.29 out of 10. The inclusion of government bonds in the ETF represents a differentiating factor in comparison to other UK REIT ETFs.

The fund is fully invested in UK real estate with a split of 64% REITs and 35% UK government bonds, and tracks the MSCI UK IMI index of net total profitability of liquid real estate. This ETF pays dividends to its investors and it has an expense ratio of 0.40% and a tracking difference of -0.30%.

What are the highest paying REIT ETFs?

According to Investopedia, as of June 2022, some of the highest paying REIT ETFs were those with more international exposure, such as the Vanguard REIT ETF or the Invesco S&P 500 Equal Weight Real Estate ETF. According to market analysts like Adam Fayed, the following were some of the highest paying REIT ETFs globally:

HSBC FTSE EPRA Developed UCITS ETF (HPRD)

The HSBC FTSE EPRA Developed UCITS ETF invests in REITs globally, with half of its assets (51%) in the United States, 11% in Japan, 6% in Germany and 5% in both Hong Kong and the United Kingdom. Smaller in size, with £137 million in assets, the fund maintains a steady performance and pays out dividends quarterly. The ETF has a risk rating of 5 out of 7. The ETF has an expense ratio of 0.4% and a tracking difference of 0.12%, regularly paying dividends to investors.

iShares Asia Property Yield UCITS ETF (IDAR)

iShares Asia Property Yield UCITS ETF provides investors with exposure to Asian real estate companies and REITs that have a projected dividend yield of 2% or higher after one year. The fund has a net asset value of $535 million, and is invested 40% in Japan, 24% in Hong Kong, and roughly 15% in both Australia and Singapore. The ETF is more expensive than others, with a higher expense ratio of 0.59% and has a tracking difference of -0.67%, providing a steady stream of dividends to investors.

iShares Cohen & Steers REIT ETF (ICF)

Blackrock’s iShares Cohen & Steers REIT ETF tracks the results of an index of differentiated U.S. REITs, with net assets valued at $2.5 million with a one year return rate of 4.77% and an expense ratio of 0.33%. The fund’s portfolio is composed of 44% specialized REITs, 18% residential REITs, 11% retail REITs, 10% industrial, 9% healthcare and 6% offices. The fund also has a strong MSCI ESG rating of 7 out of 10.

iShares Residential and Multisector Real Estate ETF (REZ)

The iShares Residential and Multisector Real Estate ETF is a UK housing ETF that tracks a basket of U.S. residential, healthcare and self-storage real estate equities, including companies like WellTower Inc., Public Storage REIT and Avalonbay Communities REIT Inc. In terms of assets managed, the fund is valued at $976 million, and last year saw a return of 31.85%. The fund is composed of 50% residential REITs, 28% healthcare REIts, and 21% specialized REITs. As of May 2022, the fund’s MSCI ESG rating was 5 out of 10.

Invesco S&P 500 Equal Weight Real Estate ETF (EWRE)

Invesco’s S&P 500® Equal Weight Real Estate ETF tracks the performance of 31 holdings from the S&P 500® Equal Weight Real Estate Index, such as Host Hotels & Resorts Inc, American Tower Corp or Iron Mountain Inc. The fund, with a net value of assets measuring $141.2 million, invests at least 90% of assets in securities that make up the S&P 500® Equal Weight Real Estate Index. The S&P 500 Equal Weight Real Estate ETF has an expense ratio of 0.4%

If you are interested in investing in UK Real Estate ETFs, you can purchase REIT ETFs in a variety of ways. Since they are publicly traded like stocks, you can purchase them through your investment broker. You can invest in most REIT ETFs in a more tax efficient way by investing in them through a Stocks and Shares ISA.

*Capital at risk. Tax treatment depends on your individual circ*mstances and may be subject to change in the future.