VNQ holds US real estate investment trusts (REITs) and other real estate companies, weighted by market capitalization. REITs must distribute most of their taxable income, so the fund has a higher dividend yield than most equity funds. The portfolio spans specialized REITs such as cell towers and data centers, industrial and logistics properties, residential, healthcare, retail and office. Real estate is sensitive to interest rates: rising rates raise borrowing costs and make REIT yields less attractive compared with bonds, which tends to lower valuations. VNQ is broader and holds many more companies than XLRE, which covers only S&P 500 real estate companies.
