A Real Estate Investment Trust (REIT) is a powerful investment that is a part of many strong portfolios. It provides a steady stream of income, and is also a good hedge against inflation. A real estate ETF is even more attractive if you can hold the investment in a TFSA account for tax free distributions and capital gains.
So what should you look for in a good real estate ETF in Canada? The key attributes are low fees, high quality holdings, and strong monthly distributions.
With that in mind, let’s take a look at three of our favourite REIT ETF’s in Canada.
Best REIT ETF’s in Canada
1. Bank of Montreal Equal Weight REIT Index ETF (symbol: ZRE) is the best REIT ETF in Canada in our opinion. This has been specifically designed to track an index of Canadian REIT stocks. The “equal weight” means that the ETF will invest and hold the REIT’s in the same proportion as they represent in the index. This is our top pick as we like the equal weighting strategy for the Canadian REIT ETF market. The reason is that there aren’t too many companies available, and this strategy provides better diversification in case one of the big REIT companies runs into trouble. This ETF also has a higher monthly distribution when compared to the other ones.
2. Vanguard FTSE Canadian Capped REIT Index ETF (symbol: VRE) is a highly respected Canadian REIT ETF, and has the lowest fees you can find. The “capital weight” means that the ETF will use a stock’s market price and outstanding shares to determine what percentage of the ETF it should make up. This fund gives investors exposure to a wide range of Canadian real estate companies from small to large. However, the distribution yield is lower than BMO’s ZRE so that’s why we have it in second place.
3. iShares S&P/TSX Capped REIT Index ETF (symbol: XRE) is a strong REIT ETF offering. This has also been designed to track an index of Canadian REIT stocks using the “capital weight” method. Surprisingly, investors have piled more money into XRE when compared with the BMO ZRE fund. XRE also has a higher trading volume than ZRE if very strong liquidity is important to you. However, if you’re looking for a capped REIT ETF in Canada, then we would suggest you go with VRE for the lower fees.
Should You Buy REIT ETF’s?
A solid REIT ETF is an excellent addition to many portfolios. The reason is that it provides a relatively stable income stream that can be tax-free if you can hold it in a TFSA. It is also a great way to get exposure to real estate investment without having to put up a big down payment in order to buy your own property – which is becoming increasingly difficult in Canada.
We are not financial advisors, and no content on this site should not be taken as financial advice. No guarantee can be made if you invest based on the information provided on this blog. We make no warranty of any kind regarding the blog and/or any content, data, materials, information, products or services provided on the blog.
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