5 Surprising Facts About REIT ETFs Every Investor Should Know

“You can’t polish dirt,” a senior Morgan Stanley manager once told Harm Meijer, author of the 2025 book Real Estate Rules: The Investor’s Guide to Picking Winners and Avoiding Losers in Listed Property, when he asked him about the best real estate advice. It’s a lesson that he says can help those investing in real estate investment trust (REITs) exchange-traded funds (ETFs).

“With REITs, you click on the mouse and you buy those shares and that’s it,” Meijer noted. However, this oversimplified view can lead to costly mistakes. Helping you avoid other such mistakes, we take you through five surprising facts about REIT ETFs that many investors overlook.

Key Takeaways

• REIT ETFs have historically provided strong returns and inflation protection through real estate exposure and rental income.
• Many REIT ETFs are “top-heavy,” with performance heavily influenced by a few large REITs.
• Beyond traditional real estate, REIT ETFs offer exposure to high-growth sectors like healthcare properties, data centers, and telecom infrastructure.

5 Surprising Facts About REIT ETFs

REIT ETFs let you invest in a diversified basket of companies that own and manage income-producing properties, from offices to data centers. These funds trade like stocks and typically offer steady dividend income since REITs must distribute most of their profits to shareholders.

1. REITs Have Often Outperformed the S&P 500 Over the Long Term

While REITs have historically outpaced the S&P 500 index (25- and 50-year returns are better than the stock market), they’ve struggled comparatively in the past decade, hit hard by both the pandemic and rising interest rates.

Yet, not all REIT ETFs are created equal. Specialized sectors like self-storage (up 10.9% in 2024) and data centers (up 15.8%) have shown more resilience than others. “You have to have the right type of assets,” Meijer said. These are usually “in supply-constrained areas.”

REIT ETFs help you navigate these sector differences by providing broad exposure across property types. Below, you can see the returns for REITs in specific sectors, which gives you an idea of the returns of ETFs that hold REITs invested in those areas.

2. REIT ETFs Are Striking for Their Tax Efficiency

Investing in REIT ETFs can be more tax-efficient than directly owning individual REITs or physical real estate. Because REIT ETFs are structured as pass-through entities, they avoid double taxation at the corporate level, allowing most of their income to be distributed as dividends to you.

3. Many REIT ETFs Are “Top-Heavy”

Another interesting aspect of REIT ETFs is their “top-heavy” structure, where a small number of large REITs dominate the portfolio’s holdings. For instance, major players like American Tower Corp. (AMT) and Prologis Inc. (PLD) often comprise a significant part of these funds. This could mean your returns depend heavily on how these few large companies perform.

4. Smart Beta Strategies Are Gaining Popularity in REIT ETFs

A lesser-known fact about REIT ETFs is that they employ “smart beta” strategies beyond traditional market capitalization weighting. Instead of simply tracking an index based on market cap, these funds weight their holdings based on dividend yield, financial health, or growth potential.

This approach often cuts down on your risk by focusing on those characteristics that have historically led to better performance.

5. REIT ETFs Cover Unexpected Real Estate Sectors

Meijer said that a mistake he often sees is that investors go with the conventional wisdom. “For example, people tell you offices are terrible now,” he said, but he thinks the right approach often finds significant prospects in areas other investors might shy away from.

The same goes for newer sectors where you can put your capital. Today’s REIT ETFs don’t just own shopping malls and apartment buildings—they’re invested in data centers that power cloud computing, cell tower networks that connect our phones, and self-storage facilities that are remarkably profitable. For example, healthcare REITs are up 33% in 2024, while specialty REITs have gained over 50%, showing how these newer sectors are changing the real estate landscape.

Bottom Line

While these funds make real estate investing as easy as buying a stock, smart investors know to look under the hood. For investors wanting real estate in their portfolio without the headaches of being a landlord or putting their chips in one REIT, REIT ETFs offer an attractive option. However, as with any investment, Meijer said, “You have to do your homework.”