Real Estate Investment Trusts (REITs) are often regarded as long-term investment tools due to their stable dividend yields. However, during the 2022-2023 interest rate hike cycle, the high-interest-rate environment increased their financing costs and Treasury yields, putting pressure on REITs and diverting capital to fixed-income products. Although interest rate policy stabilized after 2024, the slow decline in Treasury yields continued to pose expansion challenges for REITs focused on sectors such as office buildings and retail, with their stock prices remaining in a sideways trend.
Looking ahead, as Treasury yields are expected to decline, yield-seeking capital may flow back into high-dividend assets, potentially leading to a valuation recovery for REITs. For investors looking to position for this trend without taking on individual security risks, diversified exchange-traded funds (ETFs) are an ideal tool. The following two REIT ETFs may perform well in 2026.
As the world’s largest REIT ETF, the Vanguard Real Estate Index Fund ETF (VNQ) covers 153 stocks across 17 sectors, including healthcare, retail, and industrial. Its top three holdings are Welltower (WELL), Prologis (PLD), and American Tower (AMT). The fund primarily invests in large-cap REITs, offering a stable structure suitable for long-term allocations such as retirement savings.
VNQ has an effective yield of 3.62%, an expense ratio as low as 0.13%, and no minimum investment requirement, providing a low-cost way for investors to participate in the REIT market.
The Real Estate Select Sector SPDR Fund places greater emphasis on growth-oriented REITs such as data centers, logistics, and communication towers, which directly benefit from the long-term expansion of cloud computing, artificial intelligence, and e-commerce. The fund holds only 31 stocks, with its top three holdings also being Welltower, Prologis, and American Tower.
XLRE’s 30-day SEC yield is 3.48%, with an expense ratio of 0.08%. Although its portfolio is slightly more concentrated, it offers greater growth potential, making it suitable for investors seeking a balance between yield and growth.
