What VNQ actually is

VNQ is Vanguard’s ETF for US real estate. It invests at least 80% of its assets in the stocks that make up its index, a broad set of US real estate companies, mostly REITs (real estate investment trusts). The fund is classed as non-diversified.

It launched in 2004.

What is inside

A real estate ETF holds many property types: apartments, warehouses, data centres, cell towers, shopping centres, offices and health-care buildings. Spreading across property types and across many companies avoids relying on one landlord.

Distributions

REITs generally pay out most of their taxable income to shareholders, which is why VNQ’s yield is usually higher than a broad stock fund’s. REIT dividends are often taxed differently from ordinary dividends, depending on your country. Check the fund’s current yield, fees and distribution schedule on the issuer’s website, because they change.

What to keep in mind

  • Interest-rate sensitivity. Rising rates raise borrowing costs and can lower REIT prices.
  • Property cycles. Office and retail space have been under pressure in recent years.
  • Tax treatment. Distributions may not qualify for lower dividend rates.
  • Overlap. Real estate already makes up part of broad US stock funds.

Quick take

VNQ is the easiest way to add real estate income to a portfolio without buying property. Read about the differences in REITs vs dividend stocks.