Investing in Vanguard REIT ETF (VNQ): Analyzing Upside Potential

With VNQ trading at a recent price near $84.59 per unit, investors may be wondering what the potential upside is of investing in the Vanguard REIT ETF. VNQ is an incredibly well-diversified REIT fund, with investments in 168 different securities, and with exposure to all relevant REIT sub-sectors. This article will explore the potential upside of investing in the Vanguard REIT ETF (AMEX:VNQ) by looking at three of its underlying holdings with notable upside to their analyst target prices. Additionally, we will compare VNQ with its two main competitors, RNP and SCHH, to determine which REIT ETF is the most attractive option for investors.

VNQ, or Vanguard Real Estate ETF, is an exchange-traded fund (ETF) sponsored by The Vanguard Group, Inc. It seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 Index, which is composed of publicly traded REITs and Real Estate-related securities. The fund is diversified across the Real Estate sector and is one of the largest REIT ETFs on the market, with over $33 billion under management as of 2021.

The Vanguard REIT ETF (AMEX:VNQ) has a number of underlying holdings with potential upside to their analyst target prices. These include two residential REITs, American Homes 4 Rent (NYSE:AMH) and Invitation Homes (NYSE:INVH), as well as a retail REIT, Kimco Realty (NYSE:KIM). All three of these REITs have seen their analyst target prices increase in recent months, suggesting that there is potential upside for investors in the Vanguard REIT ETF.

In addition to the potential upside of its underlying holdings, the Vanguard REIT ETF (AMEX:VNQ) also offers investors a dividend yield of 3.42%, which is significantly higher than the yield on the S&P 500 index. This dividend yield makes VNQ an attractive option for income-seeking investors, as well as for those seeking long-term capital appreciation.

VNQ also has several advantages over its two main competitors, RNP and SCHH. RNP, the iShares Mortgage Real Estate ETF, is heavily concentrated in mortgage REITs, which can be more volatile than other REITs and offer less diversification. SCHH, the Schwab US REIT ETF, is more diversified than RNP, but still has a large concentration in residential REITs. In comparison, VNQ has a more diversified portfolio and is less exposed to the volatility of the mortgage REITs and residential REITs.

When comparing VNQ to its two main competitors, it is clear that VNQ is the most attractive option for investors. VNQ has a more diversified portfolio, a higher dividend yield, and potential upside to its underlying holdings. With these factors in mind, investors should consider the Vanguard REIT ETF (AMEX:VNQ) when looking to add exposure to the Real Estate sector to their portfolio.