8 Best REIT ETFs in Canada to Track in October 2023

Want to invest in real estate without the huge hassle of purchasing an investment property? Buying a real estate investment trust (REIT) ETF could be the answer.

The potential for REITs to transform real estate in Canada is high. For example, mortgage REITs in the U.S. helped to finance approximately 1.4 million homes and contributed 2.9 million full-time jobs to the economy in 2020.

We will cover the best REIT ETFs in Canada below and discuss some of their features.

Differences Between REITs and REIT ETFs

There is often some confusion about what is a REIT vs REIT ETF. Here are some of the key differences:

	REITs	REIT ETFs
Definition	A company that owns, operates, or finances income-producing real estate.	A collection of REITs in one fund that trades on an exchange like a stock.
Liquidity	Varies. Some REITs trade on major stock exchanges while others do not.	High liquidity as they trade on major stock exchanges.
Diversification	Limited to the assets owned or managed by the REIT.	Diversified as they hold multiple REITs, spreading risk across various properties and sectors.
Management	Active management of real estate assets.	Usually passive, typically tracks an index of REITs. But can be active as well.
Fees	Direct operational costs; may have management fees if externally managed.	Management fees, typically lower than mutual funds but higher than individual stocks.
Dividend Yields	Can vary significantly based on individual REIT performance.	Typically reflects the weighted average yield of the REITs in the ETF.
Entry Point	Can buy shares in a single REIT.	Buy shares in an ETF, getting exposure to multiple REITs at once.
Taxation	Typically, dividends from REITs are taxed as ordinary income.	Dividend tax treatment depends on the composition of dividends received from underlying REITs. May be a mix of ordinary income and capital gains.

Related Reading: Best REITs in Canada

Key Factors When Choosing Your REIT ETF

Before investing in your REIT ETF, make sure you understand its key factors:

1. Objective and Strategy: Knowing the specific focus and approach of the REIT ETF is foundational. Whether the ETF emphasizes commercial, residential, or niche sectors will greatly impact its performance and suitability for your portfolio.
2. Holdings and Concentration: The diversity or concentration of the ETF’s holdings can significantly affect its risk profile. It’s essential to understand how spread out the investments are and if there’s excessive reliance on a few major REITs.
3. Expense Ratio: Since this fee directly erodes returns, it’s crucial to be aware of the annual charges associated with the ETF. Over time, even small differences in expense ratios can result in significant differences in overall returns.
4. Performance History: Though past performance isn’t a guaranteed indicator of future outcomes, understanding how the ETF has fared historically can give insights into its management and strategy.
5. Distribution Yield: Given that many investors turn to REITs for income, yield is a critical factor. It represents the annual dividend payment as a percentage of the ETF’s price.
6. Liquidity: High liquidity ensures that you can buy or sell shares of the ETF without significant price discrepancies or delays. It generally also translates to lower bid-ask spreads.
7. Management Team and Issuer: Consider the reputation and experience of the ETF issuer and the management team. Well-known issuers with a strong track record in the ETF space can sometimes be a safer bet.
8. Growth Potential: Consider the growth potential of the sectors and regions the ETF focuses on. Some markets or property types may offer better growth prospects than others based on macroeconomic and industry trends.

Now that you know what to look for in a REIT ETF, check out the list of our top choices below:

Best REIT ETFs in Canada

• Vanguard FTSE Canadian Capped REIT Index ETF (VRE.TO)
• Horizons Equal Weight Canada REIT Index ETF (HCRE.TO)
• BMO Equal Weight REITs Index ETF (ZRE.TO)
• Invesco S&P/TSX REIT Income Index ETF (REIT.TO)
• iShares S&P/TSX Capped REIT ETF (XRE.TO)
• CI Canadian REIT ETF (RIT.TO)
• CI Global REIT Private Pool ETF (CGRE.TO)
• Harvest Global REIT Leaders Income ETF (HGR.TO)

1.  Vanguard FTSE Canadian Capped REIT Index ETF

Vanguard is an investment manager that offers a great REIT ETF in Canada. The REIT ETF offers exposure to Canadian REITs. VRE is passively managed and tracks the FTSE Canada All Cap Real Estate Capped 25% Index.

VRE has a long performance track record and is a large ETF in terms of assets under management. Its MER is among the lowest in Canada for a REIT ETF.

With just under 20 holdings, the ETF holds a good amount of underlying REITs. Considering that each REIT has its own real estate holding, the strategy is well-diversified.

VRE pays distributions to investors on a monthly basis. With a high dividend yield, you can expect a great level of income from this REIT ETF.

The ETF is labelled as being medium risk by Vanguard, which is standard for most REIT ETFs.

With excellent overall features, VRE is a great REIT ETF on the Canadian ETF shelf to consider adding to your investment portfolio.

2.  Horizons Equal Weight Canada REIT Index ETF

Horizons, a well-known name in the ETF space in Canada, offers an interesting REIT ETF. The REIT ETF offers exposure to several Canadian REITs. HCRE is passively managed and tracks the Solactive Equal Weight Canada REIT Index (Total Return).

Similar to a lot of Horizons’ other total return ETFs, HCRE uses a derivative strategy (swap) to generate returns for clients. This means that the ETF does not hold the actual REITs but rather swap agreements that offer an identical return. 

HCRE has a very short performance track record and is a fairly small ETF in terms of assets under management. Its MER is one of the lowest in Canada for a REIT ETF.

With approximately eight REIT holdings, the strategy is relatively concentrated (versus peer REIT ETFs). Keep in mind that each underlying REIT has a portfolio of properties that it invests in as well.

The ETF’s strategy (using swaps) has its pros and cons. From a tax efficiency standpoint, the ETF does not pay any dividends, so it is more tax efficient. From an income perspective, the lack of regular distributions will require you to sell units to raise cash.

HCRE carries a medium risk rating from Horizons, which is fairly standard for a REIT ETF.

Depending on whether you require a steady stream of distributions from your REIT ETF or not, HCRE may be a great, low-cost option to consider.

3.  BMO Equal Weight REITs Index ETF

BMO’s Equal Weight REITs Index ETF is another option to consider for adding Canadian real estate exposure to your portfolio. ZRE invests in Canadian REITS, is passively managed, and tracks the Solactive Equal Weight Canada REIT Index.

ZRE has a long performance track record and is one of the largest ETFs on our list in terms of assets under management. 

With over 20 underlying REIT holdings, ZRE is a well-diversified ETF.  ZRE’s MER is fairly average for a REIT ETF in Canada and is substantially higher than some of the low-fee options on our list.

ZRE has a substantial distribution yield and pays distributions to investors on a monthly basis. BMO labels ZRE as a medium-risk fund, which is, again, fairly standard.

Although not an inexpensive REIT ETF to consider, ZRE otherwise comes with fantastic features across the board. It is an excellent way to add Canadian real estate exposure to your portfolio.

4.  Invesco S&P/TSX REIT Income Index ETF

Invesco is the investment manager behind a good REIT ETF in Canada. The cleverly-named REIT ETF invests in Canadian REITs. REIT.TO is passively managed and tracks the S&P/TSX Capped REIT Income Index.

REIT.TO has a medium-length performance track record and is a tiny ETF in terms of assets under management. Its small size does put it at risk of closing in the near future if it does not manage to grow in assets.

Having just under 20 holdings, REIT.TO holds a substantial amount of underlying REITs, making it a well-diversified ETF. The ETF is relatively inexpensive from an MER perspective when compared to most REIT ETFs in Canada.

REIT.TO pays distributions to investors on a monthly basis and has a high dividend yield. REIT.TO is rated medium risk by Invesco, which is again standard for most REIT ETFs.

Assuming that REIT.TO grows its assets in the future, it is a great REIT ETF to consider.

5.  iShares S&P/TSX Capped REIT ETF

Blackrock’s iShares Canadian lineup contains a great REIT ETF. ZRE invests in Canadian REITS, is passively managed, and tracks the Solactive Equal Weight Canada REIT Index.

XRE has a very long performance track record and is the largest REIT ETF on our list in terms of assets under management. 

With over 20 underlying holdings, XRE is another well-diversified REIT ETF.  XRE’s MER is average for a REIT ETF in Canada and is quite a bit higher than the low-fee options on our list.

XRE has a decent distribution yield and pays distributions to investors on a monthly basis. XRE’s yield is relatively lower than most of the other ETFs on our list.

Blackrock labels XRE as a medium-risk fund, which is a standard rating for a REIT ETF.

Although very similar to VRE in terms of features, XRE’s lower annualized yield and equal MER may not be as attractive for some investors. The ETF has excellent features otherwise and is a great choice for adding Canadian real estate exposure.

6.   CI Canadian REIT ETF

CI’s Canadian REIT ETF is one of the few ETFs on our list that are actively managed. RIT invests primarily in Canadian REITs but has the flexibility to invest up to 30% of its assets into foreign securities. Since it is actively managed, RIT’s portfolio managers are looking to outperform their benchmark.

RIT has a very long performance track record and is another large REIT ETF on our list in terms of assets under management. 

With over 60 underlying holdings, RIT is extremely well diversified.  XRE’s MER is very high when compared to other Canadian REIT ETFs, but it covers the active management as well as the additional research on foreign security allocation.

RIT has an excellent distribution yield and pays distributions to investors on a monthly basis, like most REIT ETFs. 

CI Global Asset Management labels XRE as a medium-risk fund.

Apart from its high MER, the CI’s REIT ETF has excellent features overall. If you believe in active management and value involvement from a portfolio management team, RIT is a great option to consider.

7.   CI Global REIT Private Pool ETF

CI’s Global REIT Private Pool ETF is another ETF on our list that is actively managed. CGRE invests in global REITs and real estate securities, making it one of Canada’s few global REIT ETFs. CGRE’s active management means that portfolio managers are looking to outperform their benchmark.

The ETF has a very short performance track record and is a small ETF in terms of assets.

With just under 60 holdings, CGRE is well diversified. CGRE’s MER is very high when compared to other Canadian REIT ETFs, but it reflects the additional costs of researching global securities as well as active management.

CGRE has a great distribution yield and pays distributions to investors on a monthly basis, like most REIT ETFs. CI Global Asset Management labels CGRE as a medium-risk fund.

As a global REIT ETF available in Canada, textbook investment theory makes it a great choice to consider within your portfolio, as CGRE invests outside of Canada as well. The ETF’s performance over time should be monitored to determine if it justifies the ETF’s high fees.

8. Harvest Global REIT Leaders Income ETF

Harvest’s HGR ETF is a unique REIT ETF available in Canada. HGR invests in global REITS and also uses a covered call strategy to increase the fund’s annualized yield significantly. HGR is an actively managed strategy.

The ETF has a medium-length performance track record and is a tiny ETF in terms of assets. The ETF’s small size puts it at risk of closing down early in the future if it can’t attract additional capital.

With over 30 global REIT holdings, HGR is a well-diversified ETF. HGR’s MER is the highest on our list by quite a margin but reflects the additional complexities of the global strategy and the covered call approach.

HGR has an extremely high dividend yield and pays distributions to investors on a monthly basis, like most REIT ETFs. CI Global Asset Management labels CGRE as a medium-risk fund.

If you are very focused on a high-income stream from your real estate investments, HGR is an option to consider. Be sure to keep an eye on the ETF’s asset level and performance going forward, as the fees are significantly higher than other REIT ETFs on our list.

Are REIT ETFs Worth The Fees?

If you are investing with a long-term horizon, REIT ETFs can be worth the fees that they cost as compared to actually buying the property. 

A REIT ETF is responsible for a large number of investment properties and takes responsibility for things such as collecting rent and managing properties. Replacing a REIT ETF on your own would require you to become a property manager for a large number of properties, which is likely impossible.

As a short-term investor, REIT ETFs can drop in value rapidly if the overall stock market experiences a correction. This is because other investors are rushing into cash and selling all asset classes. As a rule of thumb, investing in REIT ETFs or most medium-risk investments is inappropriate over a short time horizon.

Over a long period of time, REIT ETF returns are more similar to the returns of actual physical real estate. From 1977 to 2010, data shows that REITs have generally outperformed direct real estate investing in the U.S.

High yields, additional diversification, and liquidity are all great reasons to consider REIT ETFs and also why they are generally worth their fees.

However, many people prefer just buying a few REITs themselves directly to save on the MERs, rather than buy REIT ETFs. That is also a great option for many investors.

Downsides to Investing in REIT ETFs

While investing in REIT ETFs offers many potential benefits, there are also downsides to consider:

1. Expense Ratios: Even though ETFs usually have lower expense ratios than mutual funds, they still carry fees. Over time, these fees can erode returns.
2. Dividend Taxation: Unlike the qualified dividends from many stocks, REIT dividends are often taxed as ordinary income, which can be at a higher rate for many investors.
3. Interest Rate Sensitivity: REITs, in general, are sensitive to interest rate fluctuations. When interest rates rise, the high dividends paid by REITs can become less attractive relative to other investments, leading to a decrease in REIT prices.
4. Market Volatility: Like all investments traded on stock exchanges, REIT ETFs can be subject to market volatility. This can lead to short-term price fluctuations.
5. Limited Capital Appreciation: While REITs are known for their dividend yields, they may not offer as much capital appreciation potential as other equity investments.
6. Concentration Risk: Some REIT ETFs might focus heavily on specific real estate sectors (e.g., residential, commercial, healthcare). If one sector underperforms, the ETF’s performance can be significantly impacted.
7. Economic Dependency: The real estate market is closely tied to the broader economy. Economic downturns can lead to decreased demand for space, falling rental incomes, and reduced property values.
8. Lack of Control: Investing in a REIT ETF means you’re entrusting the management to someone else, as opposed to direct real estate investment, where you have more control over individual properties.
9. Regulatory Changes: Governments can introduce regulatory changes that affect the real estate market, such as rent controls or zoning laws. These can influence the profitability of REITs within the ETF.

How to Buy the Best REIT ETFs in Canada

The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:

To learn more, check out my full breakdown of the best trading platforms in Canada.

Conclusion

We have looked at a complete list of REIT ETFs on the Canadian shelf above. Here’s another list that contains the best ETFs in Canada.

With that said, REIT ETFs in Canada are not the only way to add real estate exposure to your portfolio. Individual stocks involved in real estate should also be considered an alternative to REIT ETFs.