Real Estate ETFs turn negative in 2022 after a strong 2021 performance

With the prospect of higher interest rates threatening the sector, real estate stocks have made an about-face in the early stages of 2022, reversing course after standout gains in 2021. The sell-off has put pressure on ETFs tied to the sector — but the market is far from uniform.

Even within the broad category of real-estate ETFs, there are segments that have held up better than the rest, as well as areas that have seen more intense pressure. So far, global real estate has seen significantly more limited declines than the market in the U.S. At the same time, residential ETFs have seen shallower losses than those focused on industry, especially self-storage.

Looking at the real estate sector in general, the segment represents the worst-performing part of the S&P 500 this year, falling 11.8% on the year. The slide comes after the group ranked as one of the top-performing areas in 2021, returning over 40%.

This has substantially impacted ETFs catering to the sector. The larger and more broad scale real estate ETFs, ones that cover a wide range of stocks, have all dipped double digits to start 2022. The Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE), iShares U.S. Real Estate ETF (NYSEARCA:IYR), and the Vanguard Real Estate ETF (NYSEARCA:VNQ) each have dropped -11.1%, -10.3%, and -10.1%.

Still, some portions of the market have had more limited losses. The iShares Residential Real Estate Capped ETF (NYSEARCA:REZ) is a fund that provides investors exposure to stocks in the residential and multisector real estate market. While underperforming the general market so far in 2022, the fund has outperformed the real estate sector as a whole.

REZ has $1.16B AUM, 50 holdings, and finds itself -7.3% YTD.

REZ has done far better than industrial-focused ETFs. For example, the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA:INDS) is one of the poorest performing real estate ETFs.

INDS invests in industrial REITs that are part of the e-commerce distribution and logistics networks along with self-storage facilities. The fund has $425.7M AUM, 18 holdings, and is -12.7% YTD.

Looking outside the U.S., the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ:VNQI) has been one of the best performing real estate ETFs outside of leveraged and inverse funds. The fund provides exposure to the global real estate market minus the U.S. Additionally, VNQI has $4.8B AUM, 744 holdings and is -1.9% YTD.

While the real estate sector has suffered in 2022, Seeking Alpha contributor Juan de la Hoz outlines how REITs could outperform in the coming months as heightened inflation boosts real estate prices and returns.