Wary of U.S. REITs and U.S. real estate-related ETFs. I know that I am.
For instance, using Risk Grades standardized measure of volatility, the SPDR U.S. Dow Jones REIT Fund (NYSEARCA:RWR) registers 212 while the SPDR DJ International Real Estate (NYSEARCA:RWX) logs 117. That makes the U.S. REIT Fund 1.8x as volatile as the international counterpart. (Note: The S&P 500 benchmark index rings in at 87.)
When one takes nearly twice the risk, one typically requires twice the reward. And yet, the SPDR U.S. Dow Jones REIT Fund (RWR) is up roughly 12% YTD, while the LESS volatile SPDR DJ International Real Estate (RWX) is up 34%.
Close to 2x the risk for 1/3 the reward? Why on earth would I be interested in that?
If you’re developing a global portfolio with various asset classes, you may have been told that “real estate” exposure is a good thing. However, the vast majority of market-based U.S. REITs do not meet my idea of sensible. Moreover, a U.S. homeowner already has a fair amount of real estate exposure in a primary residence.
In contrast, how many U.S. residences have exposure to international property? And with risk that is comparable to Europe (NYSEARCA:IEV) 117, while less than China (NYSEARCA:FXI) 152 or Brazil (NYSEARCA:EWZ) 153, it may make sense to diversify into international real estate.
Here is the YTD performance for 5 popular, non-U.S. real estate ETFs:
|International (Non-U.S) Real Estate ETFs Through 10/9/09|
|Claymore China Real Estate (NYSEARCA:TAO)||71.4%|
|WisdomTree International Real Estate Fund (DRF)||41.2%|
|iShares FTSE NAREIT Global Developed Excluding U.S. (NASDAQ:IFGL)||39.2%|
|iShares S&P World Excluding U.S. Property Index (NYSEARCA:WPS)||35.4%|
|SPDR Wilshire International Real Estate (RWX)|
Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.