3H LIFE – INVESTMENT & NOMAD

What Most Investors Miss About Cross-Border REIT ETFs

If you’re looking at REIT ETFs in 2026, you’re probably focused on one number:

Dividend yield.

But yield alone doesn’t tell the real story.

Between U.S. and Canadian REIT ETFs, the biggest differences are often hidden in:

• Sector concentration
• Interest rate sensitivity
• Currency exposure
• Withholding tax structure
• Underlying index construction

Let’s break down three strong U.S. REIT ETFs and three Canadian REIT ETFs — and then uncover what most investors overlook.

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US Top 3 U.S. REIT ETFs (2026)

1. Vanguard Real Estate ETF (VNQ)

• Tracks: MSCI US Investable Market Real Estate 25/50 Index
• Broad exposure across U.S. equity REITs
• One of the largest and most liquid REIT ETFs globally

Why it matters:
VNQ includes a wide spectrum of sectors — industrial, residential, healthcare, data centers — not just traditional retail or office.

Less-known detail:
Its diversification reduces single-sector shock risk compared to more concentrated REIT ETFs.

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2. Schwab U.S. REIT ETF (SCHH)

• Tracks: Dow Jones U.S. Select REIT Index
• Typically low expense ratio
• Focused on equity REITs (excludes mortgage REITs)

What’s interesting:
Because SCHH excludes mortgage REITs, it avoids leverage-heavy exposure that can amplify rate volatility.

For rate-sensitive environments, that structural difference matters.

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3. iShares U.S. Real Estate ETF (IYR)

• Tracks: Dow Jones U.S. Real Estate Index
• Includes REITs plus real estate management firms

What many overlook:
IYR’s broader inclusion can create slightly different sector weights versus VNQ or SCHH, which affects performance during certain real estate cycles.

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Canada Top 3 Canada REIT ETFs (2026)

1. iShares S&P/TSX Capped REIT Index ETF (XRE)

• Tracks: S&P/TSX Capped REIT Index
• Concentrated exposure to major Canadian REITs

Important nuance:
The Canadian REIT market is significantly smaller than the U.S. market, meaning XRE is more concentrated in fewer large names.

That concentration increases single-issuer weight impact.

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2. BMO Equal Weight REITs Index ETF (ZRE)

• Equal-weight structure
• Reduces dominance of largest REITs

Why this matters:
Equal weighting increases exposure to mid-sized REITs, potentially improving diversification compared to cap-weighted ETFs like XRE.

However, equal weighting can increase volatility.

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3. Vanguard FTSE Canadian Capped REIT Index ETF (VRE)

• Tracks FTSE Canada All Cap Real Estate Capped Index
• Broader real estate exposure beyond just REIT structures

Less-known angle:
VRE includes real estate operating companies in addition to REITs, which slightly changes risk composition.

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Key Differences Most Investors Don’t Consider

1. Market Size and Sector Breadth

The U.S. REIT market includes:

• Data centers
• Cell towers
• Logistics warehouses
• Self-storage
• Healthcare

Canada’s REIT market is more concentrated in:

• Residential
• Retail
• Industrial

That means U.S. REIT ETFs often provide broader sector diversification.

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2. Currency Exposure

Canadian investors buying U.S. REIT ETFs assume USD exposure.

If CAD strengthens, U.S. returns translate lower in CAD terms.

Currency risk is often ignored but materially impacts long-term returns.

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3. Withholding Tax Structure

U.S. REIT dividends may be subject to withholding tax for Canadian investors when held outside registered accounts.

Inside RRSP accounts, certain withholding exemptions may apply depending on structure.

Tax location matters more than yield percentage.

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4. Interest Rate Sensitivity

REIT ETFs often move inversely to interest rate expectations.

However:

• U.S. REIT sector diversification can buffer impact
• Canadian REIT concentration may amplify sector-specific moves

In 2026, rate expectations remain a critical macro driver.

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So Which Is Better?

If you prioritize:

• Broad sector diversification → U.S. REIT ETFs
• Domestic currency alignment → Canadian REIT ETFs
• Equal weighting exposure → ZRE
• Maximum liquidity → VNQ

Many investors combine both to reduce geographic concentration risk.

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Example Cross-Border Allocation Strategy

Instead of choosing one:

• 60% U.S. diversified REIT ETF
• 40% Canadian REIT ETF

This balances:

• Sector breadth
• Currency exposure
• Geographic diversification

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Final Thoughts

US and Canada REIT ETFs are not interchangeable.

They differ in:

• Sector composition
• Market depth
• Currency risk
• Tax treatment

The “best” ETF depends less on yield and more on:

• Portfolio structure
• Currency exposure
• Risk tolerance
• Tax location

Understanding those structural differences is what separates informed investors from yield chasers.

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If you’d like next:

• CAD-hedged vs unhedged U.S. REIT ETF breakdown
• Tax-efficient holding structure for Canadians
• Long-term volatility comparison modeling
• Dividend sustainability analysis