First-Ever International Real Estate ETF Launched

Further to my posting from two months ago we now have details on SSgA’s new streetTRACKS DJ Wilshire International Real Estate ETF (RWX). Although there are closed end funds covering international real estate, this is the first ETF to cover this fairly broad [although neglected] asset class. In the case of RWX, it tracks the Dow Jones Wilshire ex-US Real Estate Securities Index.

Here’s a chart for this index from the DJ Wilshire Index website which seems to show something close to a 30% return since mid July:

click to enlarge

Clearly, a strong trend up since the summer. Very similar to the Northern Global Real Estate Index Fund [NGREX] which I mentioned in my article from October. Here’s its latest chart:

The recent 2% drop is rather modest compared to the 17% run up since the fund’s inception in early August. Still, we’re talking about time series data that’s far too short for proper analysis. Luckily, Dow Jones provides data for its indices and you can find data specific to its DJ-Wilshire real estate indices on its site.

Some further information on the The DJ-Wilshire ex-US Real Estate Securities Index and the DJ-Wilshire ex-US Real Estate Investment Trust Index can be found in a handy fact sheet [PDF].

More detailed explanations regarding the composition rules in general for the DJ-Wilshire Real Estate Indices can also be found.

After digging through all this, I suppose a good question is how much of a diversifier international real estate really is. Here’s the chart comparing NGREX, SPY and iShare MSCI EAFE Index (EFA):

Again, it’s a short time period and we’ve seen relatively high correlations among most asset classes [both in up and down markets] over the past few years. But this picture really does not provide much comfort of international real estate as a diversifier to broad equity market exposures.

So, now we roll up our sleeves are dig a bit deeper. Using the data from the Dow Jones website for their ex-US Real Estate Securities Index, I show here a simple/crude Excel-built line chart for its price alongside the S&P 500 Index going back about 8 years:

Perhaps not a fair comparison as one index is for the US and the other is for everything outside of the US. So I redid the chart to include EFA which only allows for data going back to August 2001:

We can see that in the international space, real estate has been an outstanding performer, greatly outperforming the broader MSCI EAFE Index, albeit the ETF’s performance is net of some fees but the scope of the difference remains the same. In terms of a diversifier, we can see that real estate securities appear to go down hard [if not harder] than the broader equity markets in times of distress [2002, spring 2004 and summer 2006]. As strong as the S&P 500 and MSCI EAFE have been since this past summer’s correction, the DJ-Wilshire ex-US Real Estate Securities Index has shown even more spectacular growth.

For anyone who is weary of recent highs attained by many broad market indices [US, Canada, various other regions and sectors], you have to wonder how much more gas is in the tank for international real estate.

Comments

[Panskeptic:]

Is there any way to break this info down by region? I'd love to know how Asian real estate performed vs. the whole international index.

2006 Dec 20 11:04 AM

[JonD:]

www.ssgafunds.com/etf/...

doesn't have performance by country but does have holdings by security and by country.

can someone tell me why all of this and all of the domestic REIT products *exclude* Timber REITs? makes no sense to me. first of all, there's fewer than 10 of them worldwide so why bother excluding them. second, what business is *more* tied to the actual real estate (LAND) than Timber?

2006 Dec 20 11:37 AM

[Tom Kasperski:]

Thanks for the charts.

2006 Dec 20 01:51 PM

[Richard Kang1:]

Video where an SSGA portfolio manager talks of the fund and the asset class here: publish.vx.roo.com/the...;channel=Mutual+Fund%2...

2006 Dec 20 06:43 PM

[eyekew:]

What about the various Cohen and Steers funds: IYR, RWF, RLF, etc

2006 Dec 21 02:45 AM

[Richard Kang1:]

The REIT ETF space has been highly skewed (home bias) to the US market with RWR, VNQ and IYR being good examples. So, the news from SSGA on the new ETF (RWX) simply allows investors to diversify globally. I see it like an investor who has an SPY portfolio now adding EFA for broad international exposure.

With regard to past performance, take a look at this chart (hope this works): bigcharts.marketwatch....;compidx=aaaaa%3A0&...

This chart is similar to the last chart from my piece above except I have replaced the DJ-Wilshire ex-US Real Estate Securities Index with RWR. As you can hopefully see, RWR has also outperformed the SPY and EFA over this period but not as much as its international counterpart.

More info on the new ETF can found here: www.ssgafunds.com/etf/...

2006 Dec 21 10:43 AM

[Dan Hector:]

I think Barclays did it a couple of months ago with global and asian iShare eft's listed on the LSE.

2006 Dec 21 12:35 PM

[QVM Group:]

Nice charts. Do you have another verion of your last chart that also includes RWR plotted with the other three (intl real estate, EFA and SPY)?

2006 Dec 22 08:31 PM

[Ganesh Kumar:]

Any idea how the distributions for this fund will be. Looks like a good fund for diversification but I am wondering whether to invest in this fund via regular account or tax deferred account

2006 Dec 26 08:15 AM

[Richard Kang1:]

RS:
I'll do you one better. Go to bigcharts.com. There might be an advertisement page that you have to pass through. Once you're in, type RWR at the top of the page and click on the "Advanced Chart" red button. A 1-year chart for RWR will be produced. On the left side, click on the dark blue "Compare To" button. You'll see a drop down menu for market indices as well as a place to enter ticker symbols. Here, in this space, you can enter "NGREX EFA SPY" (of course, without the quotation marks). Then click the orange "Draw Chart" near the top left of the screen.
You should get this chart (I hope):
bigcharts.marketwatch....;compidx=aaaaa%3A0&...

The chart looks rather like March/April 2006. If you change the timeframe on bigcharts to 4 years you see that RWR has had some fairly significant drawdowns (April 2004, August-October 2005, December 2006) however is still well within a channel that began near the end of 2002. Nothing too different from EFA and SPY over this 4 year period. RWR certainly does seem to behave like a high beta stock compared to the S&P 500. Makes me wonder if RWX will behave like a high beta stock within MSCI EAFE. Likely so.

2006 Dec 26 08:25 PM

[Richard Kang1:]

PJ

I will first admit that even as a practioner of investment/portfolio management, I am far from the best qualified to make comments with regard to taxes. However, your question is an important one as it pertains to asset location ... for most investors as important as asset allocation. Specific to your question, I've always made a rule of thumb that REITs (REIT ETFs or related real estate securities) are to be considered not tax efficient and thus should generally be held in tax deferred accounts. I don't know what RWX will provide in terms of distributions but I would look into how funds like NGREX have done. Something like Morningstar might be able to help provide the data with regard to a list of similar funds for your to do your analysis.

2006 Dec 26 08:36 PM