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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

Kang chart 1

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:

NGREX

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):

NGREX SPY 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:

S&P 500 DW exUS RESI TR

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:

S&P 500 DW exUS RESI TR EFA

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.

Source: First-Ever International Real Estate ETF Launched