VNQI Vs. VNQ: International REITs Offer Higher Current Income

The internationally focused VNQI ETF has outperformed its U.S. counterpart, VNQ, in 2025, driven by lower valuations and a weaker U.S. dollar. While both have experienced weak dividend growth due to elevated interest rates, projections indicate VNQI could continue to outperform VNQ by approximately 2% annually, supported by its higher current yield and currency tailwinds. However, VNQ may deliver comparable near-term returns from anticipated Fed policy normalization by late 2026/early 2027, though interest rate changes and significant reliance on valuation/currency gains remain key investment risks.

Analysis

A comparative analysis of the Vanguard Global ex-U.S. Real Estate ETF (VNQI) and the Vanguard Real Estate ETF (VNQ) indicates a divergence in performance and outlook. Year-to-date in 2025, VNQI has outperformed its U.S.-focused counterpart, a trend attributed to lower starting valuations in international markets and a weak U.S. dollar. Despite this, both ETFs have exhibited weak to negative dividend growth over the past decade, a direct consequence of the elevated interest rate environment. Projections suggest VNQI could continue to outperform VNQ by approximately 2% annually, supported by its higher current income yield and the potential for a sustained currency tailwind from a weaker dollar. However, VNQ may offer comparable near-term returns, with the potential for an outsized boost from anticipated Federal Reserve policy normalization by late 2026 or early 2027. The primary risks to this outlook for both instruments are future changes in interest rates and the fact that a significant portion of expected returns is dependent on valuation and currency movements rather than fundamental income growth.

Key Decisions for Investors

• Investors seeking higher current income and international diversification in real estate may consider overweighting VNQI relative to VNQ, based on its projected 2% annual outperformance and favorable currency tailwinds.
• Tactical investors with a view on U.S. monetary policy might hold or establish a position in VNQ to potentially capitalize on a rally tied to Fed policy normalization anticipated in late 2026 or early 2027.
• Monitor U.S. dollar trends and central bank interest rate policies closely, as these are the critical drivers of relative performance and represent the key risks for both ETFs.
• Be aware that both funds have a history of poor dividend growth, meaning total return will likely be highly dependent on uncertain valuation and currency gains.