Strategic Allocation: VNQI vs. HAUZ for Global Real Estate Exposure in 2026

The structural investment case for global real estate equities is strengthening, framed by a favorable but selective recovery. After a period of repricing, the sector now offers compelling entry points, supported by a rebound in market activity and resilient demand in key growth segments.

The foundation for optimism is clear in recent performance. In the third quarter of 2025, global REITs delivered positive returns, a notable shift from earlier volatility. This momentum was driven by a more favorable interest rate outlook and recovering capital markets, which provided a tailwind for valuations. More importantly, it was powered by sustained demand in specific, structural growth sectors. Data centers and senior housing remained key growth engines, while the retail sector showed resilience. This sector-specific strength is critical; it signals that the recovery is not broad-based but is instead being led by assets with clear demand-supply imbalances, a dynamic that is expected to persist.

That leads to the core opportunity: a significant re-pricing of assets. Over the past three years, real estate valuations have repriced by 20–25%. This adjustment has created a material discount to historical levels and to underlying net asset values, offering attractive entry points for patient capital. The environment is now shifting from one dominated by macroeconomic uncertainty to one where performance will be increasingly shaped by granular, sector-specific dynamics. As one industry leader noted, the balance of risks and opportunities is moving toward more asset-level considerations, which favors disciplined, selective strategies.

This shift is already translating into improved market liquidity. Transaction volumes are rebounding, a key indicator of a returning market. Specifically, European commercial real estate transaction volumes reached €188.8bn last year, a 13.7 percent increase year-over-year. This uptick, mirrored in other regions, reflects a combination of motivated sellers, increasingly engaged buyers, and greater availability of debt. It signals that the market is returning to form, which can spur renewed private capital interest and M&A activity-particularly in markets with already-elevated valuations.

The bottom line is a setup for a corrugated recovery. While cyclical factors like monetary policy remain a risk, the structural forces are aligning. The combination of attractive valuations, a rebound in dealmaking, and resilient demand in data centers and senior housing creates a constructive, if selective, environment. For investors, this means the focus must be on capitalizing on the repricing cycle through smart, sector-specific allocation rather than broad market exposure.

Direct ETF Comparison: Cost, Concentration, and Performance

For investors seeking global real estate exposure, the choice between VNQI and HAUZ comes down to a clear trade-off between diversification, cost, and recent performance. Both funds offer similar market sensitivity, but their operational profiles and returns tell a nuanced story.

The most fundamental difference lies in portfolio construction. VNQI provides broad diversification, holding 742 assets as of early 2025. This massive footprint across over 700 securities significantly reduces single-stock risk and offers a truly global, market-cap-weighted slice of international REITs. In contrast, HAUZ's portfolio is more concentrated, with nearly 300 fewer holdings. This difference stems from HAUZ's index, which excludes companies from Pakistan and Vietnam, leading to a more selective, though still international, mandate.

On the bottom line, HAUZ holds a slight expense advantage. With a 0.10% expense ratio, it is cheaper to own than VNQI's 0.12%. For a passive investor, this is a tangible cost savings over time. However, VNQI edges out in income, offering a slightly higher dividend yield of 4.58% compared to HAUZ's 4.34%. This yield differential is a key consideration for income-focused strategies.

Performance over the past year tells a more decisive story. As of January 8, 2026, HAUZ delivered a 1-year total return of 21.27%, outperforming VNQI's 19.63%. This gap suggests HAUZ's more concentrated, potentially more nimble portfolio may have captured specific regional or sector opportunities more effectively in the recent market cycle. Yet both funds exhibit remarkably similar market risk, with betas of 0.73 and 0.71 relative to the S&P 500, indicating they move in tandem with the broader market but with less volatility.

The bottom line is that these are two well-constructed, low-cost vehicles for global real estate. VNQI is the choice for maximum diversification and a higher yield, while HAUZ offers a cheaper entry and a recent performance edge. For a strategic allocation, the decision hinges on whether an investor prioritizes breadth of exposure or a leaner, higher-yielding portfolio.

Strategic Positioning: Matching ETF to Investor Profile

The choice between VNQI and HAUZ is not a one-size-fits-all decision. It is a strategic allocation problem, where the optimal vehicle depends entirely on an investor's specific mandate, risk tolerance, and return objectives. The evidence points to clear, actionable recommendations for distinct profiles.

For an investor with a pure, low-cost, and broad diversification mandate, the Vanguard Global ex-U.S. Real Estate ETF (VNQI) is the compelling choice. Its sheer scale is a key differentiator: with $3.53 billion in assets under management, it is the largest global real estate ETF, offering unmatched liquidity and a market-cap-weighted slice of the international market. This is paired with extensive coverage, holding 742 assets as of early 2025. This massive footprint across over 700 securities provides a level of diversification that significantly reduces single-stock risk. For a core holding in a globally diversified portfolio, VNQI's combination of breadth, low cost (0.12% expense ratio), and a slightly higher dividend yield of 4.58% makes it a structurally sound foundation.

On the flip side, for a tactical investor seeking a concentrated global ex-US real estate tilt, the Xtrackers International Real Estate ETF (HAUZ) presents a notable opportunity. Its recent performance edge is hard to ignore: HAUZ delivered a 1-year total return of 21.27% compared to VNQI's 19.63% as of January 8, 2026. This gap suggests its more selective mandate-excluding companies from Pakistan and Vietnam-may have allowed for a more nimble portfolio that captured specific regional or sector opportunities more effectively in the recent market cycle. While it holds fewer assets, its lower expense ratio of 0.10% and a yield of 4.34% still provide a competitive, concentrated exposure for a tactical overlay.

A shared and significant advantage for both funds is their income generation relative to the broader market. In a low-yield environment, their yields around 4.5% provide a substantial income cushion. This is a stark contrast to the S&P 500's yield of 1.10%, highlighting the income premium inherent in global real estate equities. This makes both ETFs attractive for income-focused strategies, though VNQI's edge in yield and diversification may be more appealing for a core holding.

The bottom line is one of deliberate trade-offs. VNQI is the benchmark for broad, low-cost, diversified exposure. HAUZ is the tactical vehicle for a concentrated, potentially higher-return tilt within the same asset class. For a strategic allocation in 2026, the decision hinges on whether an investor's priority is the security of scale and breadth or the potential for outperformance from a leaner portfolio.

Catalysts and Risks for 2026: The Path Forward

The strategic allocation to global real estate equity hinges on a few forward-looking factors that will determine whether the current repricing cycle translates into sustained performance. The path forward is not guaranteed; it will be shaped by the evolution of monetary policy, the persistence of geopolitical uncertainty, and the depth of a recovery signaled by transaction flows.

The primary catalyst remains the trajectory of interest rate policy. A sustained favorable outlook is critical for sector performance. As noted in the third quarter of 2025, global REITs delivered positive returns supported by a favorable interest rate outlook. This dynamic is expected to continue, with an expected easing in monetary policy seen as a key tailwind. However, the environment is one of "complex" uncertainty, where rate volatility remains a risk. The sector's sensitivity to funding costs means that any prolonged period of higher-for-longer rates or unexpected tightening would directly pressure valuations and cap rates, slowing the recovery.

Key risks are emerging on the geopolitical and economic fronts. Geopolitical uncertainty has soared, raising questions over investment predictability and economic growth. This is a cross-market headwind that can dampen sentiment and capital flows, particularly in more volatile regions. Simultaneously, a potential softening in the labor market is a growing concern. Evidence from the end of 2025 shows concerns about a softening labor market emerged, which could signal a broader economic deceleration. For real estate, this would threaten occupier demand, especially in office and retail, and could undermine the fundamental strength needed to support rental growth and asset values.

Monitoring transaction volume trends and sector-specific capital flows is paramount for gauging the depth of the recovery. These are leading indicators of market health and liquidity. The rebound in dealmaking is already evident, with European commercial real estate transaction volumes reaching €188.8bn last year, a 13.7 percent increase year-over-year. This uptick, mirrored in the U.S. and Asia, signals a return to form. For investors, tracking these volumes is essential. A sustained increase indicates that the market is moving beyond a simple repricing cycle into a phase of active value creation, driven by motivated sellers and engaged buyers. It also signals that private equity and debt capital are returning, which can support higher asset values and M&A activity.

The bottom line is a framework for active monitoring. Success in 2026 will depend on the sector navigating a complex path where the primary catalyst of monetary easing must overcome persistent geopolitical and economic risks. The depth of the recovery will be validated by continued growth in transaction volumes and capital flows into structural growth sectors like data centers, senior housing, and multifamily. For a strategic allocation, this means looking past broad market sentiment to the granular signals of deal activity and sector-specific demand.