Unlock the ETF Secret That Maximizes Real Estate Returns

Choosing between the Vanguard Real Estate ETF (VNQ) and the Vanguard FTSE Canadian Capped REIT Index ETF (VRE.TO) is more than a simple investment decision. It’s a strategic bet on an entire country’s economy, currency, and tax code. These two funds might both target real estate, but they operate on completely different battlegrounds. Making the right choice requires a clear understanding of what you’re actually buying.

Insights

• VNQ offers direct exposure to the massive U.S. real estate market, while VRE.TO is a concentrated play on Canadian property.
• Currency risk is a major factor. A fluctuating CAD/USD exchange rate can either amplify your gains or erase them entirely, depending on your home currency.
• Tax rules are not on your side. Canadians holding VNQ in a non-registered account face a 15% U.S. withholding tax, though an RRSP provides a shield. U.S. investors holding VRE.TO generally cannot avoid the 15% Canadian withholding tax, even within an IRA.
• VNQ provides broad diversification with over 160 holdings. VRE.TO is highly concentrated, with its performance tied to just 16 stocks as of June 2025.
• The final decision comes down to your view on the U.S. versus the Canadian economy, your tolerance for currency swings, and your personal tax situation.

The Tale of Two Markets: Geography and Holdings

At its core, the choice is simple: Do you want to invest in American or Canadian real estate? Vanguard designed VNQ to track the MSCI US Investable Market Real Estate 25/50 Index, giving you a piece of the entire U.S. property market. It trades on the NYSE Arca in U.S. dollars (USD).

VRE.TO, on the other hand, tracks the FTSE Canada All Cap Real Estate Capped 25% Index. It trades on the Toronto Stock Exchange (TSX) in Canadian dollars (CAD) and focuses exclusively on Canadian Real Estate Investment Trusts (REITs)—companies that own or finance income-producing real estate.

This geographic split leads to a massive difference in diversification. As of June 2025, VNQ holds a portfolio of around 165 different stocks. Its top holdings are giants like Prologis (industrial logistics), American Tower (cell towers), and Equinix (data centers). This shows a clear tilt towards the modern economy's infrastructure.

VRE.TO is a much tighter, more concentrated fund with just 16 holdings. Its portfolio is dominated by familiar Canadian names like Canadian Apartment Properties REIT, RioCan REIT, and Granite REIT. This concentration means the fund's fate is tied to a handful of major domestic players.

The Numbers Game: Cost, Size, and Payouts

When you look under the hood, the structural differences become even more apparent. VNQ is a behemoth, with over $60 billion in Assets Under Management (AUM) as of June 2025. Its daily trading volume is in the millions of shares, meaning you can buy or sell large positions with ease.

VRE.TO is a much smaller fund, with approximately $1.2 billion CAD in AUM. Its daily trading volume is significantly lower, typically in the tens of thousands of shares. While perfectly adequate for most retail investors, it lacks the deep liquidity of its U.S. counterpart.

Cost is another key differentiator. VNQ has a rock-bottom Management Expense Ratio (MER)—the annual fee you pay the fund manager—of just 0.12% as of June 2025. VRE.TO’s MER is 0.39%. While competitive for a Canadian ETF, it’s more than three times the cost of VNQ.

For income seekers, both ETFs deliver regular payouts. As of June 2025, VNQ’s distribution yield sits around 3.9%, while VRE.TO offers a higher yield of approximately 4.6%. This difference often reflects the market's perception of risk and growth prospects in each respective country.

The Tax Minefield and Currency Headaches

This is where many investors get tripped up. Cross-border investing introduces tax and currency complexities that can seriously impact your bottom line.

Let’s talk about currency first. If you’re a Canadian who buys VNQ, you’re not just betting on U.S. real estate; you’re also betting against the Canadian dollar. If the U.S. market performs well but the Canadian dollar strengthens against the USD, your returns in CAD could be flat or even negative. For example, a 10% gain in VNQ could be completely wiped out by a 10% rise in the loonie.

Then there’s the taxman. For Canadian investors, holding VRE.TO is simple. But if you hold VNQ in a standard taxable account or a TFSA, the dividends are subject to a 15% U.S. withholding tax. The only way to avoid this is to hold VNQ inside an RRSP, where the Canada-U.S. tax treaty provides an exemption.

For U.S. investors, the situation is reversed but trickier. Buying VRE.TO means your dividends will face a 15% Canadian withholding tax. Unlike the RRSP rule for Canadians, holding VRE.TO in a U.S. retirement account like an IRA does not exempt you from this tax. You may be able to reclaim some of it through a foreign tax credit on your U.S. return, but it adds a layer of paperwork and complexity that many prefer to avoid.

"Real estate cannot be lost or stolen, nor can it be carried away."

Franklin D. Roosevelt 32nd President of the United States

Performance and Economic Realities

History doesn’t predict the future, but it does provide context. The performance gap between these two ETFs has been stark. Over the last decade, VNQ delivered an annualized return of roughly 5.03%, while VRE.TO managed only 0.73%.

That is not a typo.

This divergence is a direct reflection of their underlying economies. VNQ’s performance is tied to the health of the dynamic, diversified U.S. economy. It benefits from population growth, technological innovation, and the policies of the Federal Reserve. Recent interest rate stabilization from the Fed has provided a tailwind, helping VNQ return over 8% in the last 12 months.

VRE.TO’s fate is linked to the Canadian economy, which is heavily influenced by commodity prices, immigration trends, and the actions of the Bank of Canada. The Canadian real estate market has faced different pressures, and the BoC's policy path has created a different environment for REITs, resulting in much flatter long-term performance.

"Real estate is the purest form of entrepreneurship."

Brian Buffini Real Estate Coach and Entrepreneur

Analysis

So, what does this all mean for your strategy? The choice isn't about which ETF is "better" in a vacuum. It's about which strategic exposure you want in your portfolio. Choosing VNQ is a vote of confidence in the long-term dynamism of the U.S. economy and its diverse real estate sectors, from data centers fueling the AI boom to sprawling logistics warehouses.

You accept the currency risk as the price of admission for exposure to a much larger, more innovative market. The fund's low cost and deep liquidity make it an efficient tool for this purpose.

Opting for VRE.TO is a more focused, domestic play. It's a bet that the Canadian real estate market, despite its recent sluggishness, offers stable, income-producing potential. You eliminate currency risk and simplify your tax situation (if you're Canadian).

However, you also accept a highly concentrated portfolio, a higher management fee, and a performance record that has significantly lagged its U.S. peer. You are betting on a handful of Canadian companies to navigate a less dynamic economic landscape. For some, the simplicity and higher current yield might be appealing, but the opportunity cost over the last decade has been immense.

Finally, consider accessibility. Canadians can easily buy VNQ through any major brokerage, but they will pay currency conversion fees. For Americans, buying a Canadian-listed ETF like VRE.TO can be a headache, as not all U.S. brokerages offer access to the TSX. This operational friction is another factor pushing many U.S. investors toward domestic options by default.

Final Thoughts

There is no single right answer here. The decision between VNQ and VRE.TO hinges entirely on your personal financial map. A U.S. investor looking for simple, tax-efficient real estate exposure will almost certainly find VNQ to be the path of least resistance. A Canadian investor must weigh the allure of U.S. diversification and growth against the certainty of currency risk and tax headaches.

If you believe in the long-term strength and innovation of the U.S. economy and are willing to manage the currency and tax implications, VNQ offers broader exposure and a stronger historical track record. If you prioritize simplicity, want to avoid currency volatility, and have a firm belief in the fundamentals of Canadian real estate, VRE.TO keeps your investment close to home.

Your choice ultimately reflects your investment philosophy: Are you seeking broad, global-powerhouse exposure or a concentrated, domestic position? Answering that question will make the decision between VNQ and VRE.TO perfectly clear.

Did You Know?

The total value of the U.S. real estate market is estimated to be over $40 trillion, whereas the Canadian real estate market is valued at approximately $7 trillion CAD (around $5 trillion USD). This size difference helps explain the vast disparity in the scale and diversification between VNQ and VRE.TO.