iShares US Real Estate ETF

IYR

Market cap $4.35B

REITs, including Vanguard REIT ETF (VNQ), have underperformed recently due to multiple compression and the impact of rising interest rates. Historically, REITs have delivered returns comparable to the S&P 500, with recent underperformance mostly driven by valuation adjustments rather than fundamental weakness. The transition from rising to stable high interest rates is now a tailwind for REITs, supporting higher forward growth rates and improved acquisition economics.

REIT ETFs look low-yield, but they are skewed by growth-heavy holdings. Higher income exists, but only with selective, active REIT picking. Some overlooked REITs offer ~6% yields with strong fundamentals.

After a solid January performance, the REIT sector recovery gained steam in February with a stronger +3.70% return. Large cap REITs (+5.80%) led the REIT sector in February with strong gains from mid caps (+5.26%) and small caps (+4.94%). Micro caps (-6.12%) badly underperformed again in February. 71.71% of REIT securities had a positive total return in February.

The REIT sector rebounded from a rough 2025 (-3.57%) by starting off 2026 in the black (+1.09%). Small-cap REITs (+3.27%) outperformed in January, followed by solid gains from mid-caps (+2.65%) and large caps (+2.35%). Microcaps, however, had a dismal start to the year with. 63.46% of REIT securities had a positive total return in January.

REITs, as measured by VNQ, have outperformed in 2026, emerging as a safe haven amid tech and market declines. REITs offer reliable, contractual cash flows and dividend yields (3.8%) far exceeding the S&P's 1.15%, with FFO yields at 7.24%. Current REIT valuations (13.8x FFO) are historically cheap relative to the S&P (29.3x earnings), creating a compelling cash flow yield spread.

The Federal Reserve's Chair Jerome Powell's term is expiring on May 15, 2026.

The REIT sector closed out 2025 with a tough December (-1.48%) and finishing the year with a -3.57% total return for 2025. Small caps (+0.51%) eked out a small gain in December, while mid caps (-1.77%), large caps (-2.55%) and micro caps (-3.88%) fell at the close of the year. 42.04% of REIT securities had a positive total return in December with only 38.36% in the black for the full year.

Everything says REITs should be soaring — but they aren't. A hidden headwind is quietly holding returns back. One overlooked niche is where I am pouring my REIT capital.

The REIT sector returned to positive territory in November (+1.02%) after back-to-back months in the red. Mid caps (+3.53%) led the REIT sector in November followed by small caps (+3.38%) and large caps (+0.32%); micro caps (-8.76%) badly underperformed. 68.15% of REIT securities had a positive total return in November.

Year-to-date returns across the REIT market varied remarkably, with large gains from non-U.S. REITs and U.S. healthcare REITs, while U.S. residential and data center sectors were notable laggards. In the last three years, there have been two major forces impacting the performance of equity markets and real estate. Today's public REIT market looks a lot different than what most investors expect. Sectors previously considered niche have grown to be essential in today's economy and society.