ETF Battles: A Dividend Income Duel between Real Estate ETFs - SCHH vs. REZ!

dividends continue to be an area within the ETF Market with high investor interest and demand and one way to get high in consistent dividends is to focus on industry sectors with high income today's ETF battle is another audience requested matchup this time between real estate ETFs from Schwab and black rock find out which ETF is the better choice stick around well it's great to see you again I'm Ronda legi and you're watching season six of ETF battles of brand new season welcome aboard keep your awesome ETF battle suggestions coming man we've had some good ones send me your ETF ticker symbols in the comment section below or on our X feed at etfguide we could do double triple and quadruple headers so make it good also be sure to check out the description section below this video I've got viewer resources which include links to free ebooks along with our program sponsor Direction and we've also got links to our program judges so don't be a stranger today's ETF matchup was requested by a viewer named V serin serin and it's between real estate ETFs from Black Rock and Schwab uh of course dividend income is one of the reasons investors like real estate and re ETFs and this battle is going to feature two of them we've got s from Schwab and Rez from Black Rock and uh thank you again for this battle suggestion so helping us to sort through today's contest we've got two of the best Minds in the ETF Marketplace we got Mike Akin with ETF action and Tony Dong with ETF Central guys welcome back great to be here Ron it's great being here Ron so we got our four battle categories cost exposure strategy we've got performance and yield combined and then we've got our mystery category mystery of course is where you guys can pick a certain factor or thing that you feel is important to today's conversation our judges can also nominate Wild Card ETFs if they feel there's better choices somewhere else they can also opt for split decisions keep in mind none of the outcomes on this program are ever predetermined or known in advance by myself or are Judges I've got scorekeeping duties and well let's start with the first category which is cost Tony please kick things off so SC completely blows R out of the water when it comes to fees um as part of Schwab's lowcost core lineup Seas has a seven basis point expense ratio so if you invested $10,000 in this ETF on the back end you would only lose $7 a year to fees uh res is significantly more expensive at 0.48 and when it comes to liquidity ETF Central data is showing me that the average 30-day bit as spread for SC is 0.049 whereas for res is 0.072 they're both fairly slim but again s is more liquid so your total cost of ownership is going to be lower it's pretty obvious here you put two and two together and S is by far more affordable thank you Tony Mike you're up next how do you see it when it comes to cost yeah I think uh there's no question uh is the winner when it comes to cost I would note that res is a little bit more nuanced we'll get into that as we go so there could be good rationale for going res over SC but it certainly is an in cost or liquidity all right well that takes us next to exposure strategy so break it down for us Mike uh how do these two ETFs compare is a broad-based US re strategy it's going to own all of your different sub sectors of the re Marketplace everything from industrial reats commercial reats specialized reats residential reats it's going to really own kind of all of them it's going to own them in a market cap sense so just like the S&P 500 weights by the largest companies is doing the same thing for the real estate side of the marketplace that gives it a pretty Diversified portfolio across all of your different sub sectors of the re Marketplace but some are larger than others like specialty reats takes up the largest portion at 40% and then kind of across that 10% in residential reats another 11% industrial reats uh 11% in healthcare reats but a pretty Diversified basket of Securities resz as the name suggests is designed to focus more on that residential side of the re Marketplace um and but note that the name is residential reats and residential and multi sector so they can't just own only residential reats it's really not that big of a market to put into a diversified bucket so they get the rest that allocation 44% is in residential sub sector using the gixs industry classifications then you got 37% in health care primarily Healthcare reats that are like Assisted Living places like that where it's still got that residential context to it but not exactly and then another 20% in specialized reats and those specialized reats tend to have a little bit more allocation to that res sector um so really you're talking a little bit of apples and oranges here right I think of as a core allocation if you like re as a core allocation in your portfolio above and beyond what You' get just owning the S&P 500 or a total market index a lot of folks do consider it a separate asset class to that extent you really can't beat I think re is more of a trading tool just like you break down you know the S&P 500 into all of your different sectors this is just going a little bit further and breaking down the real estate sector into sub sectors and if you have a specific call on the sub sectors of the market then you really like that residential play in the read space then you can look to Res I really can't compare the two purely from they they're trying to accomplish two different things based on the current market environment um of the real estate interest rates everything else I think I'm not looking to tactically allocate this space if anything I'm just holding my core allocation and to that extent I give currently the win to but with that big caveat they are really different types of okay got you down for thank you Mike Tony you're up next how do you see it when it comes to exposure strategy so like Mike said is your default like okay I want to invest in real estate I don't really know what to do here's the cheapest broadest option and for the job it does it quite well re once again is I really want to drw in deep on residential both multif family single family and also have some exposure to health care and Industrial so mostly in the self storage space I would also note that res is very useful if you're bar is on Commercial Real Estate but bullish on the rest because commercial real estate it's a decent section of se but you're not going to find much in res you're not going to find those distress office Towers you're not going to find those retail properties you're not going to find the stuff that you know has people holding commercial mortgage back Securities panicking a little bit so you're GNA avoid that but you know just if I took a crowd of 100 people and I had to give them the right ETF to like you know just make expressive view on real estate it's going to be it's just far broader you truly get exposure to all the well not all the rats but most of the publicly traded vesal reats in the US and it does so with an index methodology that makes a lot of sense all right well that takes us next to Performance and yield and we've combined these two uh things into one category uh since uh the real estate uh ETFs are tend to be not just uh focused on the the the growth aspect but a big portion of the return is Al also the income the dividend income so um Tony you're still up break it down for us how do these two ETFs compare so SE has the higher yield a 30-day SE C yield of a 3.93 whereas res is much lower 2.3 now one thing to note for you income investors is these neither of these are very uh tax efficient they're not paying out qualified dividends because they hold reads I I'm from Canada but I believe in the US these are tax as ordinary income so correct me if I'm wrong there but anyways these aren't like your normal capital gains or qualified dividends the tax treatment on these is not going to be the best now in terms of performance from a back test uh 20 20 2011 January to uh just two three days ago we see res delivering a compound annual growth rate of 8.98% so that's with dividends reinvested and S has liked significantly at 6.6 I wouldn't rely on this too much because that's like saying Tech has outperformed the rest of the market you wouldn't necessarily overweight that going forward well in this case residential real estate and you know Healthcare have outperformed the rest of the real estate market it doesn't mean it's going to do it perpetually so you know when you factor in yield and performance you take a rearward and also forward looking view I would still go with here I don't see a reason for res to outperform perpetually it's also more expensive and the yield is lower so I'm going to go with s here all right very good and yes uh you are correct Tony the majority of rits uh and dividends from them are tax as ordinary income here in the US up to a maximum uh rate of 37% which is the top US income tax rate and of course if you hold them in a tax deferred retirement account then you don't have to worry about that great points we appreciate that Mike you're up next on performance and yield how do you see it yeah I mean I think uh I think they're pretty similar right now I mean yes res is outperformed but as Tony you know aptly pointed out uh that it's very similar to saying like semiconductors has outperformed internet stocks right I mean we we know that there's a reason to it you built you bought it for a reason you you made that macro call um so from a pure like overtime performance perspective kind of smoothing it out I think is just better product here unless you really know what you're doing and you really have a a view on this you believe there's a reason to believe that you know re some folks believe that um there's a from a residential re perspective we have such a need for home ownership um prices are coming down they're getting to depressed it favors these reats that got Capital to come in and scoop these up on the cheap there are some underlying macro reasons why you might think these residential reats can outperform and I think you know relative like Tony pointed out last segment you know commercial real estate probably some better opportunity sets there some less concerns with the rolling of debt and re um Rec collateralizing of debt in the different sectors so you know on par potentially yeah I think it could outperform going forward here um just from a pure strategy perspective though I do like um I think if you look at the Historical return stream on a risk adjusted basis it's just going to be a little smoother ride in that overall real estate um so I'm still gonna give it to S but fully recognizing here both in the recent um past as well as I think in the short term going forward there there's some rationale on a performance perspective why resz might be able to provide that outsize return the question I didn't ask yourself is it g to out provide outsize returns to the broad real estate space or the broad Market because when you're using tactical tools you should be comparing it to the broad market and I just don't see that as as the case right now all right got you down forh in the performance and yield category that takes us next to the mystery category and this is where our judges can pick any factor that they feel is crucial to today's contest so Mike what is your mystery battle category and which of these ETFs wins it yeah so you know it's interesting when you when you get into the real estate space um the sub sectors are are they can be pretty dislocated right you can see the returns across these different sub sectors really um change a lot and you know one thing that's not really in either one of these is the digital infrastructure the REITs that are focused on the data centers the reats that are focused on on the the the growth that is needed in data centers for AI for everything else that's driving all that power usage um so there are a few ETFs out there that kind of focus in in that area idgt from ishares dtcr from Global X I really like a lot the data center in digital infrastructure um srvr is the older one I don't love that one as much just purely from a component perspective I don't think it's getting quite as much as the growthy um names that that I'd be looking for in this space to add into my read allocations Goldman Sachs just launched their their future real estate infrastructure grei um but those are all that we kind of put under that infrastructure thematic bu bucket as digital infrastructure um and they all have Hefty allocations to real estate right ranging those four tickers I just named off 47% up to 65% um that's an area that hasn't really made its way into um being big allocations in these broad-based re strategies yet um so it can move the needle by by allocating to this area you're going to get a little bit of tech in it you're gonna get a little bit of Comm Services as well but mostly they're they've got exposure to real estate and I think that's a that's an area within the real estate maret Market I'm I'm still pretty excited about they haven't um they've performed well relative to the broad real estate market but I think there there's room to continue to be optimistic in that space so any of those four specifically stand out you it seems like you like the global x one but any any of those yeah I think idgt and dtcr are my favorite of the two um a lot of reasons on that but just if you kind of really dive into the underlying and look at the growth metrics and kind of the the drive analytics that we produce there's there's a lot more momentum in those names the underlying and there's I think a little bit more allocation if you will to that gross side of that investment yeah solid analysis thank you Mike and certainly a a backdoor investment approach to AI that some investors may have overlooked so thank you for pointing that out Tony you're up next for your mystery battle category what is it and which of these ETFs wins it I'd like to introduce a third ETF um it's called homes HZ and the reason for it is I am also bullish on res iial real estate and I'm pretty bearish on Commercial Real Estate so that for me personally rules out SE I don't like how narrow res is and to be honest the the extra allocation of healthc care uh rats kind of makes me cringe a little bit I don't understand why it's there that the index is like residential and multi sector I know they kind of ran out of options and this ETF addresses that so homes tracks 100 companies represented by the Hoya Capital housing index so it has a lot of the residential reats that you saw in res but it also has home builders so you get stuff like PTY group Dr Horton uh lenar I think you get home improvement companies so you also get a lot of those up in so sorry those Mega cap consumer discretionary companies like it has home Home Depot and it has lows and it has real estate service and technology companies so firms that you know Outsource Property Management they have technology platforms for property management and so forth and also one thing that we might have forgotten is that for Rez and they don't make monthly distributions so if you're relying on them for income you're not going to get that payment every month but homes is actually one of the few uh real estate ETFs out there to pay on a monthly basis right now you're getting a 2.55 30-day SEC yield with monthly payments uh and you honestly nobody's really noticed this ETF it only has 40 million in AUM um and you don't really see it mentioned in in favor of the bigger ones like V and Q but I I actually quite like it and just for me it's the inclusion stuff like Home Depot and lows uh these home improvement stores that Source the materials that are needed and they benefit from an uptick and residential construction and just the home builders which in the states have some of the highest free cash flow uh yields out there besides from oil companies but without the cyclicality uh in terms of sensitivity or prices they're still very cyclical don't get me wrong but home builders they they' they' they have momentum on their side for sure and this is one of the only ETFs I know that can bins all that with residential real estate yeah and they could have some Tailwinds too if interest rates come down in 2025 absolutely we shall see so that brings us to the part of the program where our judges can give us their overall battle winner so Tony give it to us it it's going to be homes uh I was very excited to introduce this and it's just another one of those ETF hidden gems that you know unless you work in the space and really get to know how issuers work and who's who's a smaller player there you you likely would have uh you likely would have glossed over it but you know this one has done really well compared to the S&P 400 so compared to the midcap index where a lot of its Holdings are drawn from and it's not like it's it's not as concentrated as res uh just because you get those home builders you get those home improvement companies and it's also less topheavy so that's my pick if I had to get real estate exposure this moment Mike your final chance to weigh in with your overall winner I don't love real estate in general right now I'm still not there yet so I I I can't really say making a tactical call for me anywhere across the real estate Spectrum other than uh digital infrastructure which I think is a different ball game um but I think that's too far away from the ballpark here to consider that as a in this category I think it's it's growth versus value um you're not going to get a yield from these so leaving that out I just think broad allocation to real estate historically has made sense um you know it's a little bit um you know it is equity REITs are Equity they have Equity type risk in fact REITs historically have a higher risk relative to the market than than the broad the S&P 500 so um but I think there is a is a rationale behind having a a a Reit allocation or real estate allocation and SC is a just a really good cheap lowcost product to to get it done and Achieve that so that's my category winner um the homes call by Tony is fantastic um you know if you like residential space um just pulled it up while he was talking but you know it's got a 1.13 baited arz on the threee it's up capture is 130% down capture about 100% so if you're looking for like you're making an active call in that space um you're G to get more beta play into your call of course that can work negative as well but if you're if you're making a macro call for it it homes makes a lot of sense in that residential space because you still get those reats but you add on to it through through more allocations so just hat tip to Tony for bringing that up excellent well our judges have both weighed in with some awesome analysis and according to our final battle scorecard this could be a split decision between s and Holmes HZ and our judges for the most part agreed on S chh in three categories I thought for a second was GNA take it and then Tony blindsided us with his Wild Card Mike also blindsided us with his Wild Card of course Mike's Choice was those data center focused real estate e ET f s which I thought were uh a very solid uh uh analysis and alerting us about that uh availability uh another way to get into the the growth of data centers and AI of course through the route of a real estate focused approach and then Tony focusing on homes um he likes the the fact that uh this ETF has a monthly distribution plus uh it's it's kind of under the radar for a lot of investors but um it also focuses on US housing you don't get uh exposure to some of those troubled areas of the real estate market like commercial real estate and the office market so solid Choice as far as his uh wild card and both of our judges did an outstanding job in today's uh contest well done guys uh we really appreciate your analysis thanks Ron awesome thanks good seeing you Tony well be sure to visit the description section below we've got links to both of our program judges don't uh be a stranger we've also got links down there to our program sponsor Direction lots of good educational uh in investment uh stuff that you can uh brush up on to get your 2025 off to a strong start so again check out the description section below send me your ETF battle requests in the comment section below be sure to include your ETF ticker symbols you can also hit us up on X our X feed is at ETF guide thank you so much for watching I'm Rond Deli and this is ETF battles we'll see you on the next episode