Comparing SCHH and RWR: A Historical Lens on REIT ETF Costs and Performance

The choice between a low-cost ETF like SCHH and a higher-yielding one like RWR is not new. It reflects a persistent tension in passive investing that has played out across multiple market cycles. This trade-off between expense ratio and yield has been a recurring theme, especially as investors have adopted ETFs to gain exposure to volatile sectors like real estate.

The REIT sector itself is inherently cyclical, and its performance has often diverged sharply from broader markets during periods of stress. The dot-com bust and the global financial crisis serve as stark historical examples. In those downturns, REIT valuations collapsed as financing dried up and demand for commercial property fell. The sector's sensitivity to interest rates and economic cycles means that periods of low uncertainty, like the current backdrop, often set the stage for a more stable environment where these passive investment choices can be made with clearer visibility.

This stability is a key feature of the current setup. As of late 2025, market uncertainty had largely subsided. The Cboe VIX Index and corporate bond spreads had fallen back to levels seen earlier in the year, suggesting a less turbulent environment for REITs to operate in. This calmer backdrop echoes the conditions that followed the financial crisis, when investors began systematically seeking out low-cost ETFs to gain exposure to recovering sectors.

That shift was a hallmark of the 2010s, a decade defined by a boom in low-cost ETF adoption. Investors increasingly prioritized the expense ratio, recognizing that even a small fee advantage could compound into meaningful savings over time. This created a precedent where funds like SCHH, with its ultra-low 0.07% fee, could attract massive assets under management-$8.5 billion versus RWR's $1.7 billion-by offering a cheaper path to the same underlying market. The historical pattern is clear: in calmer times, the cost-conscious choice often wins in terms of scale.

Yet, the performance data for these two funds shows the yield side of the equation also matters. RWR, with its 0.25% fee and higher 3.87% dividend yield, has delivered slightly better total returns over the long term. This mirrors a broader historical lesson: in a sector prone to volatility, the income stream and the fund's operational approach can sometimes outweigh the initial cost savings. The current choice, therefore, is a modern iteration of a classic debate, framed by the sector's cyclical nature and the long-term adoption of ETFs as a primary vehicle for passive exposure.

The Core Trade-Off: Cost vs. Yield

The choice between these two ETFs is a classic investment trade-off, distilled into a few key numbers. At its heart, the decision is about priorities: a lower cost and larger scale, or a higher current yield and slightly better historical performance.

The cost difference is stark. The Schwab U.S. REIT ETF (SCHH) charges a gross expense ratio of just 0.07%. In contrast, the State Street SPDR Dow Jones REIT ETF (RWR) carries a fee of 0.25%. That's a 250 basis point gap, a significant spread that compounds over time. This fee advantage has clearly driven scale, with SCHH managing $8.5 billion in assets compared to RWR's $1.7 billion.

On the income side, the higher fee is rewarded with a larger yield. RWR offers a dividend yield of 3.87%, while SCHH's yield is 3.03%. This 84 basis point premium is the direct compensation for the higher cost. Historically, that yield has translated into better returns, with RWR delivering a five-year total return of $1,359 for every $1,000 invested versus $1,263 for SCHH. RWR's drawdowns have also been marginally shallower, suggesting a slight edge in risk-adjusted performance.

Viewed another way, this is the tension between the market's two dominant strategies for REIT exposure. SCHH represents the cost-conscious, scale-driven approach that has defined the past decade. RWR embodies the yield-focused, performance-oriented choice. The historical data shows the latter has edged ahead, but the former's massive size underscores the enduring appeal of low fees. The core question for any investor is which side of this equation matters more for their portfolio.

Performance and Risk: A Historical Comparison

The numbers tell a clear story. Over the past year, RWR's higher yield has translated directly into better returns, with a 1-year return of 3.2% compared to SCHH's 2.2%. This performance gap is not a one-off. Over the longer term, the pattern holds: for every $1,000 invested, RWR has grown to $1,359 over five years, outperforming SCHH's $1,263.

This superior return comes with a slight edge in risk management. RWR's historical maximum drawdown was 32.6%, marginally shallower than SCHH's 33.3%. This suggests the higher-yielding fund may have offered better downside protection during past downturns. The similarity in their sensitivity to the broader market is notable, with both funds having a beta of 1.16-1.18. This means they move roughly in line with the S&P 500, so the performance divergence isn't due to different market exposures.

The bottom line is that the cost/yield trade-off has played out as expected. RWR's higher 0.25% fee is directly linked to its 3.87% dividend yield, which has fueled its better total returns and slightly improved risk profile. The fund's slightly lower drawdown indicates that the income stream and its portfolio construction may have provided a cushion. In other words, the higher fee has been a cost for the investor, but it has been a direct investment in a higher income stream that has paid off in historical performance.

Structural Implications for the REIT Sector

The design of these two ETFs points to a deeper structural divide within the REIT sector itself, one that could influence their long-term relevance as market conditions evolve. SCHH is built to track the Dow Jones Equity All REIT Capped Index, a mandate that excludes mortgage and hybrid REITs entirely. This creates a pure-play equity REIT fund, focused on companies that own and operate physical properties. RWR, meanwhile, tracks the Dow Jones U.S. Select REIT Capped Index, which also excludes certain securities not closely tied to underlying real estate value, but its construction may allow for a different tilt within the equity universe.

This structural difference matters in a changing environment. The recent stabilization in market uncertainty, with the Cboe VIX Index and corporate bond spreads returning to beginning-of-year levels, suggests a less turbulent backdrop for REITs. In such a calmer setting, the concentrated, yield-focused approach of RWR may hold an edge. Its portfolio, which likely emphasizes income-generating equity properties, could benefit from the sector's solid operational fundamentals, including continued positive NOI growth and strong balance sheets.

Viewed through the lens of the historical cost/yield trade-off, this sets up an interesting dynamic. SCHH's ultra-low 0.07% fee and massive scale make it a durable, low-cost vehicle for broad equity REIT exposure. Its structural purity-excluding mortgage and hybrid REITs-aligns with a long-term trend toward transparency and simplicity in passive investing. Yet, in a stable environment where the sector's fundamentals are strong, the higher fee of RWR may be a more justifiable cost for the investor. The fund's design, which excludes less core real estate assets, could be seen as a way to capture the pure income stream of the sector's operational strength.

The bottom line is that their structural choices reflect different investment philosophies. SCHH offers a pure, low-cost bet on the equity REIT segment. RWR provides a potentially higher-yielding, more focused exposure within that same segment, with its own set of exclusions. As the REIT sector navigates forward, the long-term relevance of each fund may depend on whether investors value the cost savings of a pure-play index or the yield premium of a more selectively constructed one. The historical pattern shows the yield side has won on performance, but the structural clarity of SCHH ensures it will remain a major player.

Catalysts and What to Watch

The current performance divergence and cost advantage are not guaranteed to persist. Several key factors will determine whether the historical pattern holds or shifts in the coming months.

First, monitor the relative performance of equity REITs versus mortgage REITs. SCHH's index explicitly excludes mortgage REITs, which are more sensitive to interest rate changes and credit spreads. If economic uncertainty were to return, mortgage REITs could underperform, potentially widening the gap in favor of SCHH's pure equity focus. Conversely, in a stable environment where mortgage REITs benefit from a steady rate backdrop, their exclusion could limit SCHH's upside. The fund's structural purity is a feature, but it also means its performance is entirely tied to the equity segment.

Second, watch for any changes in the expense ratios or assets under management. The 0.18% fee gap is the core of the trade-off. While SCHH's ultra-low 0.07% fee has driven its massive $8.5 billion AUM, a shift in investor preference toward higher yield could pressure RWR's AUM and potentially lead to a fee reduction to remain competitive. Conversely, if SCHH's scale leads to operational efficiencies, it might further cement its cost leadership. The stability of the current market uncertainty, with VIX and corporate bond spreads returning to beginning-of-year levels, provides a calm backdrop where these structural choices can be tested without the noise of a crisis.

Finally, the broader economic environment and interest rate trajectory remain the primary drivers for REIT valuations. The sector's fundamentals are strong, with solid net operating income growth and low leverage. Yet, REITs are highly sensitive to financing costs. Any deviation from the current path of stable rates could quickly alter the risk/reward calculus for both funds. The historical context of REIT cycles shows that performance divergences often coincide with shifts in the macro backdrop. In a calmer, lower-rate environment, the higher yield of RWR may continue to pay off. But if rates rise or volatility returns, the cost advantage and structural focus of SCHH could become more compelling. For now, the stabilized uncertainty sets the stage for a test of these two established strategies.