Best REIT ETFs in Canada

This Page's Content Was Last Updated: November 17, 2022
WOWA Trusted and Transparent

What You Should Know

  • Real estate is the largest asset class.
  • Traditionally, investment in real estate is significant, concentrated, illiquid and very involved.
  • Real estate investment trust (REIT) exchange-traded funds (ETFs) allow diversified, liquid and passive investment of any size in real estate.

Large and Midsize Real Estate ETFs in Canada

Annualized Return
NameTickerLast PriceYield (%)YTD Return (%)1 Year3 Years5 Years
iShares S&P/TSX Capped REIT Index ETFXRE16.044.19−21.06−19.29−3.034.06
CI Canadian REIT ETFRIT15.595.28−23.69−21.30−1.654.51
BMO Equal Weight REITs Index ETFZRE21.345.22−20.68−19.12−0.415.88
Russell Investments Real Assets ETFRIRA17.215.19−11.84−7.71NANA
Vanguard FTSE Canadian Capped REIT Index ETFVRE28.364.04−24.67−22.85−3.542.6
Purpose Strategic Yield Fund ETFSYLD18.426.34−7.60−7.195.04NA
iShares Global Real Estate Index ETFCGR25.952.76−25.04−18.69−4.650.9
Purpose Multi-Asset Income Fund ETFPINC18.425.48−12.29−11.043.6NA

Data from morningstar.ca as of Oct 28, 2022

There are around 14,980,000 private dwellings of different types in Canada. The average home price in Canada is approximately $640,000 as of September 2022. As a result, $9,587 billion of Canadian wealth is in the residential real estate market, while the Toronto Stock Exchange market capitalization is $3,891 billion. Thus real estate is the most important store of wealth in Canada. The situation is quite similar in many other countries.

There are several drawbacks associated with real estate investment. These drawbacks include

  1. a large minimum investment size,
  2. lack of liquidity,
  3. the difficulty of diversification,
  4. the necessity of involvement,
  5. high transaction cost.
On the positive side, real estate is considered a safe investment; thus, one can often use leverage in a real estate investment. Leverage is the use of financial instruments for amplifying profit or loss. The simplest and most common form of leverage is using debt to finance your trade or investment.

In the case of a real estate investment, that is to say; you can use the property you are buying as collateral to borrow money at a favourable mortgage rate. In real estate investment, it is common to use a debt-to-equity ratio of 4, meaning that you borrow 4 dollars for every dollar you put toward purchasing your future property. The debt-to-equity ratio is commonly used to measure and compare leverage. Despite using leverage, most of us need to use an intermediate investment to prepare our down payment for a real estate investment.

This intermittent investment can be a combination of savings accounts, guaranteed investment certificates, exchange-traded funds and mutual funds.

Another drawback of real estate investments is a lack of liquidity. After buying a property, there is no guarantee that you will be able to sell at a reasonable price when you need to cash out your investment. Depending on the market conditions in the location of your property, you might have to keep your property on the market for months before you can cash out.

Then you have difficulty with diversification which is a direct result of the large minimum investment size. When you buy a stock, all that is expected is to participate in the annual general meeting of shareholders. Most retail investors don’t even do that. Thus investing in stocks is a passive investment.

On the contrary, after buying an investment property, you will be responsible for the upkeep of your property. Also, when renting out your property, you are exposed to the risk that your tenant might not honour their obligations. This is a serious risk because the eviction process can be both costly and time-consuming.

Lastly, note that buyer closing costs and seller closing costs are sizable and can eat your profit away.

Manager Tenure

Manager tenure is not a performance measure per se. Its role is to validate the historical total returns of the fund as performance measures. The annualized return loses its relevance if it is considered for a period longer than the current manager's tenure. Manager tenure is of much greater importance for actively managed funds compared to index tracking funds.

Real estate investment trusts (REITs) are a solution to all five limitations we listed for real estate investment. A REIT is similar to a mutual fund or an exchange-traded fund in that it pools investors' resources and deploys them effectively and professionally. The REIT would pay on your behalf for the management of your property, but the diversification and liquidity benefits come at a very low price.

The role of the REIT is to own and manage several properties on behalf of its unit holders and distribute the rent it receives among its unit holders. REITs are often structured as trusts. If they were structured as corporations, they would have faced corporate tax. That extra layer of taxation would have made them an inefficient vehicle for holding real estate investments.

Fund Size

Fund size, on the one hand, tells us how much other investors trust this fund with their money, and on the other hand, it shows how much the fixed cost of running the fund can be spread out and thus how much economies of scale can be achieved by the fund.

Often REITs specialize in a specific section of the real estate market or a specific geographic region.

For example, holdings of a REIT might be concentrated in retail stores, commercial real estate, industrial real estate, residential real estate or health care real estate. To achieve diversification, it is best to use an ETF representing the whole real estate sector by holding a selection of REITs.

The performance of a REIT ETF depends on the performance of the underlying REITs. The performance of each REIT depends on the performance of properties owned and managed by that REIT. As can be seen below, Canadian REIT ETFs have limited price gain and receiving dividends is the main reason for holding a Canadian REIT ETF. So Canadian REITs and REIT ETFs often attract investors interested in fixed income, which makes this a very interest-rate sensitive investment. Interest rate dependence explains the inferior performance of REITs in 2022, as 2022 has been a year of fast-rising interest rates.

Alpha

Alpha is a measure of beating the market. It is also called excess return or abnormal rate of return. Alpha can be defined for a strategy, trader, fund, portfolio or security. Positive alpha shows performing better than the index, while negative alpha shows performing worse than the index.

iShares S&P/TSX Capped REIT Index ETF-XRE

iShares S&P/TSX Capped REIT Index ETFExchange/Ticker symbolTSX/XRE
Followed indexS&P/TSX Capped REIT Index
10 Years Annualized Return4.28%
Manager Tenure (Yrs)20
Fund Size (Mil)$956
Average Market Cap (Mil)$3,649
3 Year Alpha0.17
3 Year Beta1.18
3 Year R-Squared74.6
3 Year Standard Deviation23.23
3 Year Sharpe Ratio0.06
Management Expense Ratio0.61%

Data from morningstar.ca as of Oct 28, 2022

XRE gives you broad exposure to Canada’s real estate sector and pays monthly distributions to investors. XRE replicates the performance of the S&P/TSX Capped REIT Index. This is a subindex of the S&P/TSX Composite index and, similar to the S&P/TSX Composite index, is float weighted. As a result, REITs are represented in XRE mostly proportional to their size.

iShares S&P/TSX Capped REIT Index ETF

Exposure of XRE to Different Subsectors

SubsectorWeight (%)
Retail REITs38.4
Residential REITs23.65
Industrial REITs19.75
Diversified REITs7.07
Office REITs6.46
Health Care REITs4.21
Cash and/or Derivatives0.44

Top 10 Holdings of XRE

TickerName Weight (%)
CAR.UNCanadian Apartment Properties REIT13.78
REI.UNRioCan REIT11.08
GRT.UNGranite REIT8.65
CHP.UNChoice Properties REIT6.72
SRU.UNSmartCentres REIT6.53
AP.UNAllied Properties REIT6.46
FCR.UNFirst Capital Realty REIT6.40
SMU.UNSummit Industrial Income REIT5.82
HR.UNH&R REIT5.64
DIR.UNDream Industrial REIT5.29

Note that the ticker symbol for each REIT ends in UN to emphasize that these are units of a trust rather than shares of a corporation.

CI Canadian REIT ETF-RIT

CI Canadian REIT ETFExchange/Ticker symbolTSX/RIT
Followed indexActively Managed
10 Years Annualized Return7.45%
Manager Tenure (Yrs)17.9
Fund Size (Mil)$575
Average Market Cap (Mil)$2,727
3 Year Alpha1.52
3 Year Beta1.08
3 Year R-Squared81
3 Year Standard Deviation20.5
3 Year Sharpe Ratio0.16
Management Expense Ratio0.87%

Data from morningstar.ca as of Oct 28, 2022

RIT is an actively managed ETF investing in the real estate sector. It is concentrated on Canadian equities but might invest as much as 30% of its portfolio in foreign equities. RIT provides monthly distributions to investors. Currently, its portfolio is 88% invested in Canada and 12% in the US.

CI Canadian REIT ETF

Asset Allocation of RIT

Cash & Equivalents (3.7%)US Equity (8.2%)Canadian Equity (12.1%)Income Trust Units (76%)

Top 10 Holdings of RIT

NameSector allocation Weight
Summit Industrial Income REIT - UnitsReal Estate Investment Trust5.11%
First Capital REIT - UnitsReal Estate Development4.75%
BSR REIT - UnitsReal Estate Investment Trust4.35%
Canadian Apartment Properties REIT - UnitsReal Estate Investment Trust4.31%
Tricon Residential IncReal Estate Development4.18%
Dream Industrial REIT - UnitsReal Estate Investment Trust4.09%
Morguard North American Rsdntl REIT - UnitsReal Estate Investment Trust4.04%
Granite REIT - UnitsReal Estate Investment Trust4.00%
Killam Apartment REIT - Units Cl AReal Estate Investment Trust3.92%
InterRent REIT - UnitsReal Estate Investment Trust3.77%

ZRE invests equally in all liquid Canadian REITs. It gives broad exposure to the Canadian real estate sector, similar to XRE. The difference is that XRE invests in different REITs proportional to their size while ZRE invests equally in all liquid Canadian REITS.

BMO Equal Weight REITs Index ETF-ZRE

BMO Equal Weight REITs Index ETFExchange/Ticker symbolTSX/ZRE
Followed indexSolactive Equal Weight Canada REIT Index
10 Years Annualized Return5.54%
Manager Tenure (Yrs)12.4
Fund Size (Mil)$564
Average Market Cap (Mil)$2,505
3 Year Alpha2.85
3 Year Beta1.15
3 Year R-Squared74.2
3 Year Standard Deviation22.8
3 Year Sharpe Ratio0.19
Management Expense Ratio0.61%

Data from morningstar.ca as of Oct 28, 2022

BMO Equal Weight REITs Index ETF

Portfolio Allocation for ZRE
SubsectorWeight (%)
Retail REITs28.3
Residential REITs23.5
Industrial REITs14.8
Diversified REITs14.5
Office REITs9.7
Health Care REITs4.8
Health Care Facilities4.2
Top 10 Holdings of ZRE
Holdings Name% of Net Asset Value
Boardwalk REIT5.2
Granite REIT5.2
Cominar REIT5.2
Summit Industrial Income REIT5.0
Killam Apartment REIT4.9
Dream Office REIT4.9
SmartCentres REIT4.9
Allied Properties REIT 4.8
First Capital REIT4.8
Artis REIT 4.8

Russell Investments Real Assets ETF-RIRA

Russell Investments Real Assets ETFExchange/Ticker symbolTSX/ZRE
Followed indexActively Managed
Manager Tenure (Yrs)9.4
Fund Size (Mil)$302
Average Market Cap (Mil)$21,400
Management Expense Ratio2.36%

Data from morningstar.ca as of Oct 28, 2022

Russell Investments Real Assets ETF

Vanguard FTSE Canadian Capped REIT Index ETF-VRE

Vanguard FTSE Canadian Capped REIT Index ETFExchange/Ticker symbolTSX/VRE
Followed indexFTSE Canada All Cap Real Estate Capped 25% Index
Manager Tenure (Yrs)9.9
Fund Size (Mil)$272
Average Market Cap (Mil)$4,100
3 Year Alpha0.05
3 Year Beta1.22
3 Year R-Squared73
3 Year Standard Deviation24.8
3 Year Sharpe Ratio0.05
Management Expense Ratio0.38%

Data from morningstar.ca as of Oct 28, 2022

The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.