VNQ ETF

VNQ provides a dividend yield of 3.84% and has an expense ratio of 0.13%, as it follows the MSCI US Investable Market Real Estate 25/50 Index. Its P/E ratio is 40x, which is higher than SPY, mainly because of lower expected EPS growth of 4.5% for 2024, despite good price increases. VNQ may be affected by changes in Treasury yields based on new forecasts for PCE at 2.5% and interest rates at 3.75% in 2025.

Real estate has done better than other sectors in the past year, with VNQ achieving a total return of 26%, surpassing the tech-focused S&P 500 and the Dow Jones index. VNQ's strong performance is mainly due to its negative relationship with decreasing interest rates, which the market has already expected and adjusted for. Real Estate Investment Trusts (REITs) are particularly affected by interest rates because of their significant debt and dependence on tenant occupancy and rent, which can be influenced by rising rates.

Putting your money into an exchange-traded fund (ETF) that stands to gain from interest rate cuts could be a smart decision at this time, especially since more cuts may be coming soon. JPMorgan Chase predicts that there might be another rate cut in December, with additional cuts expected each quarter next year.

U.S. REITs have done much better than their global counterparts, thanks to rising valuation multiples, a stronger dollar, and higher real GDP growth. They have gained from increased real GDP growth, which is supported by a growing population and improved productivity, while international REITs have struggled with slower growth and demographic challenges in some areas. VNQI has much lower valuation multiples compared to VNQ, even though their return on equity is similar, indicating that international real estate may be undervalued.

In the last 15 years, better returns have been achieved through strategies focused on multiples and earnings rather than dividends. REITs tend to do poorly when interest rates drop, which raises worries about the potential costs of investing in VNQ. Additionally, VNQ is trading at a price-to-book ratio without any safety margin, making its investment worthiness questionable.

The REIT sector has recently done much better than the SP500. However, the latest dividend payments from VNQ indicate that its price increases have not fully matched its earnings growth. The most recent quarterly dividend paid in October shows a 50% year-over-year growth when excluding returned capital and a 27% growth when looking at the trailing twelve months.

Discover which two Vanguard ETFs offer retirees a good balance of growth and income. These options can help support financial stability during retirement.

The Vanguard Real Estate Index ETF (VNQ) is a great option for quickly investing in a variety of real estate assets. While its dividend yield of 3.6% may not be very exciting compared to other investments, it is steady and backed by its holdings. Additionally, with the Federal Reserve lowering interest rates by 0.5%, this could enhance the performance of the underlying assets.

REITs continued their positive performance in August, achieving an average total return of +2.11%, and they are up +6.97% so far in 2024. Large cap REITs saw an average gain of +5.27%, while mid-cap and small cap REITs had increases of +3.51% and +0.84%, respectively. However, micro cap REITs experienced a decline of -3.03%, and 68.39% of REIT securities reported a positive total return for the month.