Vanguard Real Estate Index Fund Admiral Shares VGSLX

Vanguard Real Estate Index’s accurate representation of the US real estate segment and its low fee are an attractive combination.

The fund tracks the MSCI Investable Market Real Estate 25/50 Index, which holds real estate stocks of all types and sizes. Most peers invest only in the largest and most frequently traded REITs, and they tend to have top-heavy portfolios. But this fund reaches into small and medium-sized stocks in addition to the largest players. Its expansive portfolio includes real estate stocks that don’t qualify as REITs, which helps it spread assets across a greater number of stocks to reduce concentration concerns.

Holdings are weighted by market capitalization, which lowers portfolio turnover and channels market sentiment. Annual turnover averaged less than 8% over the five full years through 2025. That’s in line with the fund’s top competitors and significantly below the US real estate Morningstar Category average.

The fund’s characteristics and performance look nearly identical to the Morningstar US Real Estate Index and the category average. Subindustry exposure can differ from the category average owing to the fund’s broader scope. Specifically, real estate services stocks like CBRE Group and Zillow are unique additions to the portfolio.

The fund beat the category average by 28 basis points annualized over the five years through the end of December 2025. Real estate stocks are more sensitive to interest rate changes, and this volatile period had interest rate hikes in 2022 and 2023 and rate cuts in 2024 and 2025. The fund proved its ability to perform well against its peers through these different market conditions.

Vanguard Real Estate Index has one of the broadest portfolios in the real estate category and takes measures to curb problematic concentration risks. It earns an Above Average Process rating.

The fund tracks the MSCI US Investable Market Real Estate 25/50 Index, which sweeps in stocks from the MSCI US Investable Market Index that fall under the GICS Real Estate sector classification. REITs, services, management, and development companies are included within the real estate GICS classification. This broad scope means the fund shares a lot of its largest holdings with peers, but it has a few extra names added. Stocks like Zillow and CBRE Group are typically excluded from real estate funds because they aren’t REITs, but they satisfy the index’s criteria and improve diversification.

The index also applies constraints to ensure the portfolio does not become too concentrated. No holding may occupy more than 22.5% of the portfolio, and all constituents that weigh more than 4.5% must collectively represent under 45% of the portfolio.

Spreading assets across a larger number of holdings helps limit the fund’s concentration in the largest real estate stocks. Peers in the real estate category tend to be more concentrated. Over the past three years, the category average’s 10 largest holdings have hovered around 60% of assets, while the fund’s top 10 positions have remained around 50%.

The index weights stocks by market capitalization, which reduces turnover and the associated trading costs by channeling the market’s consensus opinion of each holding’s relative value. Larger companies represent larger portions of the portfolio.

REITs still form the backbone of this fund and earn the fund a higher yield. REITs must distribute 90% or more of their income to shareholders to maintain their tax-advantaged status. As a result, the fund’s yield is usually around 3 times that of the US stock market. The fund’s trailing 12-month yield was 3.92% at the end of December 2025 compared with the market’s 1.12%.

Vanguard's equity index group earns an Above Average People Pillar for its well-supported and stable management team adept at leveraging Vanguard's comprehensive resources. Its portfolio managers benefit from the firm's global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard's practice of rotating them across various funds, enhances their expertise and understanding of different market segments.

The fund's managers directly handle trading, providing them with deeper insights into the portfolio's operations than a stand-alone trader might have. They are backed by a global team of dedicated personnel and employ sophisticated, scalable technology to minimize their workload and enhance tracking accuracy. Vanguard's independent risk-management team plays a crucial role in ensuring its funds adhere to predetermined tracking tolerances. It collaborates closely with the managers to oversee trades and address potential issues proactively. Vanguard compensates managers based on tracking error and excess return metrics to foster a culture of accountability and ensure that the management team's interests are closely tied to those of investors.

Vanguard maintains its High Parent Pillar rating as it continues to grow under new leadership.

CEO Salim Ramji has had a busy first year captaining Vanguard’s crew, and the ship remains pointed in the right direction. The firm made its largest round of fee cuts in early 2025, which came at an estimated cost of USD 350 million. It established a separate division dedicated to its advice and wealth management efforts, a sign that it wants to seriously compete within those lines of business. Asset growth has continued to be a huge success. Only BlackRock’s inflows rival the money Vanguard is taking in. Likewise, the number of clients it serves has more than doubled since 2015.

Despite that success, an ever-growing number of clients has presented a challenge: Vanguard can’t grow its services fast enough to keep up with demand. In some instances, it has had to curb certain services and capabilities or raise fees on others to cope, causing some loyal clients to criticize what they perceive as deteriorating services.

Vanguard has ambitions to bring its disruptive legacy to the bond market. It created roughly a dozen low-cost bond exchange-traded funds for US investors and several others abroad over the 12 months through June 2025. All have low fees in their respective categories, and the actively managed strategies align with Vanguard’s philosophy. They are relatively easy to understand and are conservatively managed.

Vanguard has another opportunity to prove that clients are still its priority. On the surface, its endeavor into the high-fee deal-making world of private assets alongside Wellington and Blackstone looks like a cultural mismatch. So far, the collaboration hasn’t produced anything that’s concerning.

The exchange-traded fund share class returned 5.06% annualized since it started tracking its current index in July 2018 through the end of 2025. It beat the US real estate category average by 50 basis points over the same period.

The outperformance continued in 2025. The ETF beat the category average by 1.77 percentage points. Much of this outperformance came from the fund’s inclusion of real estate service stocks like CBRE Group and Opendoor Technologies, which many of its peers exclude. The fund’s broad reach and representation of the entire US real estate segment have benefited performance.

The real estate sector is particularly sensitive to interest rate movements on account of several interrelated factors, including financing costs, yield competition, and macroeconomic risks. Rising interest rates increase borrowing costs for real estate companies, which can compress margins and limit expansion. Higher bond yields also make fixed income more attractive relative to REITs, which potentially reduces investor demand. Additionally, economic slowdowns can pressure occupancy rates and impair tenants’ ability to meet lease obligations. All these factors can broadly affect the performance of the sector, with rising interest rates in 2022 having a negative impact on real estate performance. The ETF declined by 26.20% in that year.

Vanguard Real Estate Index Admiral's Prospectus Adjusted Expense Ratio is 0.13% per year. It places it in the cheapest quintile of the Morningstar US Fund Real Estate Category, where the median fee is 0.91% per year. This cost positioning translates into a Medalist Rating Price Score of 2.21, which reflects its relative price positioning within the category. The Price Score ranges from -2.50 (most expensive) to +2.50 (cheapest), with higher scores indicating better cost competitiveness.